According to the Zhitong Finance APP, after a series of dull and uneventful mergers and "broken IPOs", one of the most highly anticipated industries in the capital market, biotech, will soon have four companies making their debut on the US stock market. These biotech companies are expected to price their IPO stocks in the coming weeks, and investors will closely watch whether they can reignite the listing vitality of this industry.

Data compiled by institutions shows that the majority of innovative drug developers that raised over $10 million in US IPOs this year have seen "stumbling" stock prices, with 6 out of 11 companies trading below their IPO price and a median decline of 45% below the issue price.

Prominent biotech companies like BioAge Labs Inc. and MBX Biosciences Inc. will seek to collaborate with top industry bankers and legal teams to reverse the pricing trend of biotech companies going public. Some bankers believe that the market's reaction to the next wave of biotech companies will indicate whether other companies in this industry can also successfully enter the US stock market and gain investor confidence later this year or in early 2025.

"For biotech companies planning to go public on the US stock market this September or in 2025, the stable or significantly upward trend in the stock prices of these four biotech companies will have a clear positive impact," said Seo Salimi, co-head of the Equity Capital Markets practice at Paul Hastings LLP.

For Bicara Therapeutics Inc. and Zenas Biopharma Inc., they have already demonstrated so-called concept validation data —— results that indicate their drugs have the potential for immense success in later-stage clinical trials. The performance of their stock prices on the first day of trading will show that there is growing investor interest in early-stage innovative drug developers. Additionally, for BioAge, it will also test market funding interest in early-stage biotech companies focused on the weight loss drug track.

The binary risks associated with developing innovative drugs make the biotech industry a very volatile investment field. During periods of market turbulence, versatile investors tend to quickly sell biotech stocks that require several years of research and development before they can be sold as therapeutic treatments.

It is understood that in 2020 and 2021, under the unprecedented "liquidity injection" monetary policy stimulus of the Federal Reserve, the market's liquidity funds were extremely ample, and the IPO boom of drug developers drove biotech companies to raise approximately $46.5 billion in the span of two years, even exceeding the total of the previous eight years - which has surprised many non-professionals.

The prosperity or recession nature of the industry, combined with the current macroeconomic and geopolitical risks, may plunge the entire US IPO market into chaos, making these four pending Biotech company IPOs under close scrutiny.

Despite the booming performance of biotech company IPOs, the returns have remained sluggish - many versatile investors were surprised when they first appeared in 2020 and 2021.

Data from institutional sources shows that as of September 3rd, Biotech drug developers raised approximately $2 billion through initial public offerings (IPOs) this year, a 24% increase from the same period last year, even though nearly two-thirds of the proceeds were raised during the industry's IPO frenzy in the first two months. The data shows that in the following six months, the proportion of biotech industry's IPO proceeds in the US stock market dropped significantly from 17% in February to 6.5%, raising only less than $0.8 billion in funds.

Most new biotech startups have performed poorly, which is a key factor leading to a significant decrease in the number of biotech company listings. The listing of Alumis Inc. has faced severe challenges, with the current trading price consistently below the IPO price, causing potential biotech listings to feel extremely panicked.

The Nasdaq Biotech Index has risen approximately 9.6% this year, benefiting from the robust growth of major pharmaceutical companies such as Regeneron Pharmaceuticals Inc. and Alnylam Pharmaceuticals Inc., while the average financing amount for newly listed biotech companies exceeds $10 million, with little change in stock prices and actual operations compared to when they first appeared on the US stock market. However, worse yet, four new listings companies have basically declared the end of their journey on the first day of listing.

The Federal Reserve is expected to begin cutting interest rates in two weeks, which may further attract investors' focus on higher-risk biotech investment opportunities. Although lower interest rates take time to enter the balance sheet, for private biotech companies seeking to go public within the next five months, a strong performance in the market after a successful IPO will be crucial.

With the prospect of increasing investor risk tolerance and the series of Fed rate cuts in September officially taking effect, there may be the driving force needed for biotech companies to end this year with a strong market recognition before the real boom of biotech IPOs begins in 2025.

"Biotech may shine in the fourth quarter of this year, as we are about to have a great product pipeline," said Louis Lehot, partner at Foley & Lardner. "Investors in the biotech IPO market have been coming in one after another and are ready to invest on a larger scale."

The recent boost in valuation for small-cap stocks due to expectations of Fed rate cuts may lead to the IPOs of these four biotech companies being one of the highlights of this year. After a successful IPO, betting on the expectation of a 100 basis point rate hike by the Fed before the end of the year is expected to boost the trading prices of these new stocks. However, if the US economy becomes too strong or overheated, and with a resilient labor market, the Fed may refuse to cut rates by 50 basis points in September, instead opting for a 25 basis point hike at each meeting for the remainder of the year, meaning a potential rate cut of 75 basis points instead of 100 basis points this year. Therefore, investors need to closely monitor economic data such as non-farm payrolls, CPI, and core PCE that affect Fed policy decisions.

If Fed rate cuts are imminent and the US economy is resilient enough not to fall into an economic recession, the rise of US stocks is very likely to rotate to small-cap stocks beyond the Magnificent 7, which have been suffering from long-term stock price declines since 2022. These stocks are theoretically sensitive to interest rate expectations, and even a slight rate cut is likely to raise their stock prices. Under the unprecedentedly strong expectations of Fed rate cuts, small-cap stocks may outperform the seven major technology giants in terms of performance. The main logic is that small-cap stocks are generally very sensitive to the benchmark interest rates set by the Fed and are heavily reliant on floating-rate loans. Therefore, in the context of rate cuts, the long-term debt pressure on them will greatly decrease, which is expected to improve their profit margins.

Against the backdrop of the expected smooth rate cuts by the Fed this year, the classic rotation of mid-cap and small-cap stocks, or the trend of profit recovery in mid-cap and small-cap stocks, may fully emerge, thereby driving capital towards mid-cap and small-cap stocks that benefit from the rate cut cycle and have very cheap stock prices, rather than the tech giants whose valuations are at historical highs. Investors will become "comparative shoppers" in the general sense, commonly known as "comparison shopping".