Selection bias is why a 55% average return sounds like a sector-wide boom and isn’t quite that simple. Biotech and pharma IPOs have returned 55% on average through July 17 this year, Bloomberg data show, against a 4.4% loss for the broader US IPO market. That headline is true. It’s also the kind of number that needs one follow-up question before you act on it: an average of what, exactly?
Part of the answer is a handful of huge winners. Veradermics, a hair-loss drug developer that went public in February, is up more than 500% — the best-performing US IPO across any sector this year. A weighted average pulls hard toward whichever few names move the most, so one Veradermics-sized outlier can lift a whole sector’s number well above what a typical biotech IPO investor actually experienced.
But there’s a second, more durable shift underneath the outlier: which companies get to IPO at all has changed. In 2021’s biotech boom, plenty of companies went public on a platform and a pitch deck, before any human trial data existed. This year, even as AI’s own IPO wave draws bigger headlines, investors are rewarding biotech companies with real clinical results and experienced leadership instead — bankers describe it as the healthiest biotech IPO window in years, and the sector has drawn three separate $10-billion-plus acquisitions from big pharma in the past month alone, each one validating a specific approved or late-stage drug rather than a story.
That’s the distinction worth holding onto: the bar for going public got higher, not lower, and the money followed companies that could prove something rather than promise it. A big average return and a healthier selection process can both be true at once — they’re just not the same fact, and only one of them tells you anything about the next IPO in the pipeline.
My take: The average moved because the filter changed, not because biotech got easy.
Not advice. Just how I see it.