These four companies about to debut on the US stock market are worth focusing on as they may reverse the Biotech IPO downturn

According to the Zhītōng Finance APP, after a series of unremarkable M&A transactions and "broken IPOs", one of the most highly anticipated industries in the capital market - Biotech, is about to see four companies debut on the US stock market for the first time. 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 the industry.

Data compiled by institutions shows that this year, most innovative drug developers in the US IPO market that raised over $10 million have seen their stock prices struggle. Out of 11 companies, 6 have fallen below the IPO price, with the median drop reaching as high as 45% of the IPO price.

Well-known biotech companies like BioAge Labs Inc. and MBX Biosciences Inc. will seek to collaborate with top industry bankers and legal teams to reverse the listing pricing trend of biotech companies. Some bankers indicate that the market's response to the next batch of biotech companies will indicate whether other companies in the industry can land on the US stock market intensively later this year or early in 2025 and gain investor confidence.

Seo Salimi, Co-Head of Equity Capital Markets at Paul Hastings LLP, said: "For Biotech companies seeking to go public on the US stock market this year or in 2025, the stable or significantly upward trend in the stock prices of these four Biotech companies planning to go public in September will have a noticeable tailwind effect."

For Bicara Therapeutics Inc. and Zenas Biopharma Inc., they have already demonstrated so-called concept validation data - results indicating that their drugs may achieve great success in later clinical studies. The strong performance of their stock prices on the first day of listing will show that the market's interest in early-stage innovative drug developers is expanding. Additionally, for BioAge, it will also test market funding interest in early-stage Biotech companies focusing on weight loss drugs.

The binary risk surrounding the development of innovative drugs makes the biotech industry a very volatile investment field. During market turbulence, versatile investors often quickly sell biotech stocks that require several years of research and development of treatment methods before being sold.

It is understood that in 2020 and 2021, under the unprecedented "big easing" monetary policy stimulus from the Federal Reserve, market liquidity was extremely abundant. The IPO frenzy of drug developers drove biotech companies to raise approximately $46.5 billion in two years, even surpassing the total of the previous eight years - a development that has surprised many non-professionals.

The prosperity or downturn of this industry, coupled with current macroeconomic and geopolitical risks, could potentially plunge the entire US IPO market into chaos. The IPO transactions of these four pending Biotech companies are currently under close scrutiny

Biotech IPO earnings remain sluggish after the boom - versatile investors were shocked when they first appeared in 2020 and 2021

Data compiled by institutions show that as of September 3, drug developers in the Biotech industry raised approximately $2 billion through initial public offerings (IPOs) this year, a 24% increase from the same period last year, although nearly two-thirds of the earnings 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 IPO earnings in the U.S. stock market dropped significantly from 17% in February to 6.5%, raising less than $800 million.

Most new Biotech startups have performed averagely, which is a key factor leading to a significant decrease in the number of Biotech companies going public. Alumis Inc.'s listing faced severe challenges, with the current trading price remaining below the IPO price, causing potential Biotech IPO companies to feel very anxious.

The Nasdaq Biotech Index rose by approximately 9.6% this year, benefiting from the robust growth of large pharmaceutical companies such as Regeneron Pharmaceuticals Inc. and Alnylam Pharmaceuticals Inc., while the average funding amount for newly listed Biotech companies exceeded $10 million, with little change in stock prices and actual operations compared to when the companies first went public. However, even worse, four new listed companies basically declared the end of their listing 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 to focus on higher-risk Biotech investment opportunities. Although it takes time for lower rates to enter the balance sheet, strong post-listing performance in the market for private Biotech companies seeking to go public within the next five months will be crucial.

The prospect of increased investor risk tolerance and a series of Fed rate cuts in September may provide the necessary impetus for Biotech companies to end the year with a strong market recognition position before the Biotech IPO boom truly kicks off in 2025.

"Biotech may shine in the fourth quarter of this year, and we are about to have a great product pipeline," said Louis Lehot, a partner at Foley & Lardner. "Investors in the Biotech industry IPOs have been arriving one after another and are ready to invest on a larger scale." The recent expectations of a rate cut by the Federal Reserve have boosted the valuations of small-cap stocks, and these four Biotech listed companies may be one of the peaks in this year's IPO market. Betting on the expectation of a 100 basis point rate hike by the end of the year could boost the trading prices of these new stocks after a successful IPO. However, if the U.S. economy is too strong or even overheated, and the labor market remains resilient, the Fed may reject a 50 basis point rate cut in September and instead choose to raise rates by 25 basis points at each remaining meeting this year, meaning there may be a 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 influence the Fed's policy decisions.

If a Fed rate cut is imminent and the U.S. economy remains resilient without falling into a recession, the upward trend in U.S. stocks is very likely to rotate to small and mid-cap stocks that have suffered long-term price declines since 2022, beyond the seven tech giants. These stock targets are extremely sensitive to interest rate expectations from an investment theory perspective, and even a slight rate cut could potentially boost their depressed stock prices. With the extremely strong expectation of the Fed starting a rate cut, the performance of small and mid-cap stocks may outperform the seven tech giants in the U.S., mainly because small and mid-cap stocks are often very sensitive to the benchmark interest rates set by the Fed. They heavily rely on floating rate loans, so a rate cut background means that the long-standing debt pressure on them is significantly reduced, potentially increasing profit margins.

Against the backdrop of the Fed smoothly cutting rates as expected this year, the classic rotation rally of small and mid-cap stocks or the trend of profit recovery in small and mid-cap stocks may fully emerge, thereby driving funds towards some small and mid-cap stocks that benefit from the rate cut cycle and have very cheap stock prices, rather than the tech giants whose valuations are historically high. Investors will become "comparative shoppers" in a general sense, commonly known as "comparing three products"