Kenvue, Acelyrin Go Public This Week. Don’t Expect a Flood of Biotech IPOs.

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Something unusual is happening on Wall Street this week: Two healthcare companies are debuting in the public markets with big initial public offerings, expected to raise more than $400 million and $3 billion, respectively.

That wouldn’t have been big news in 2021, a year that saw more than 100 IPOs in the biotech sector alone. This year, however, it is enough to stop traffic.

The two IPOs will come from Kenvue (ticker: KVUE), the

Johnson & Johnson

(JNJ) consumer healthcare spinoff that Barron’s wrote favorably about in a feature last weekend, and Acelyrin (SLRN), a California-based biotech, the smaller of the two.

For biotech investors, the deals are a hopeful sign. Private biotechs and biotech-focused venture capitalists have been in a holding pattern since late 2021, waiting for the return of interest in biotech IPOs, which would allow capital to flow into the industry and make it easier for venture firms to cash out.

But while these two IPOs might offer a glimpse of normalcy, they don’t signal the reopening of the biotech IPO window. It remains firmly shut.

“I would highly doubt it’s a sign of something bigger in any significant way,” Mizuho healthcare equity strategist Jared Holz said of the Acelyrin IPO. The message to investors is that there are cracks for well-positioned private biotechs to slip through.

“I think it will take years to get to the point where we were between 2015 and 2020,” Holz says. “No one’s knocking down the door trying to get access to IPOs.”

In more normal times, IPOs are an important part of the biotech ecosystem. New biotechs spend hundreds of millions of dollars or more moving their drugs toward Food and Drug Administration approval. To raise that kind of money, they need access to the public markets.

In 2020 and 2021, when the success of the novel Covid-19 vaccines spurred extraordinary enthusiasm for biotech in general and low interest rates made risky growth stocks attractive, private investors threw biotech after biotech at public market investors. There were nearly 100 biotech IPOs in 2020, and just over 100 in 2021.

Most of them turned out to be bad bets. Of all of those stocks, today only around 20 are trading over their initial offer prices.

The torrent of IPOs overwhelmed public market biotech investors, and the sector has since tanked as interest rates have risen, slamming growth stocks in general. The

SPDR S&P Biotech ETF
(XBI) is down 50% from its peak in February of 2021.

There were just a handful of biotech IPOs in 2022, the appetite for new issues having been destroyed. This year has seen just a few, including

Structure Therapeutics

(GPCR), which priced its IPO at $15, and is now trading at $23.92.

The steep drop in biotech valuations, however, seems to be evening out. The XBI is down only 1% so far this year, and is actually up 11% over the past 12 months. A bit of an appetite for new biotech IPOs today doesn’t seem quite as ridiculous as it might have at this time last year.

Boosting Acelyrin’s likely appeal is its focus on immunology drugs, a hot area that has produced some of the biggest biopharma blockbusters in recent years. Acelyrin’s lead drug, izokibep, is the subject of late-stage trials for the treatment of a skin condition called hidradenitis suppurativa, psoriatic arthritis, and another type of arthritis called axial spondyloarthritis.

Merck
’s
(MRK) $10.8 billion deal announced last month for

Prometheus Biosciences

(RXDX), which also focuses on immunology drugs, could help whet investors’ appetites for Acelyrin.

Also working in Acelyrin’s favor is the sheer novelty of the thing. “There’s scarcity value now with biotech IPOs,” Hozl says. “ I think the receptivity to any particular one is probably going to be better, because we’re not dealing with a situation in which there are two a week.”

Acelyrin says it will offer 20.6 million shares of its common stock, plus an option for 3.1 million more, at a price between $16 and $18 per share. The company is expected to list on the Nasdaq on Friday.

Kenvue is expected to list this week as well, but on the New York Stock Exchange. Kenvue will offer as many as 174 million shares at between $20 and $23 per share. The deal is expected to raise more than $3 billion, and will be the biggest IPO of the year so far. In a feature last weekend, Barron’s wrote that the Kenvue IPO was one “worth owning.”

Corrections & Amplifications: Acelyrin intends to list on the Nasdaq on Friday. An earlier version of this article incorrectly said the company would list on Thursday.

Write to Josh Nathan-Kazis at [email protected]