Initial public offerings, or IPOs, usually garner lots of attention. And why not? Like sports teams jockeying for top prospects on draft day, investors line up to own a piece of the company as it commences trading. The company, its employees, and existing investors clamor to see whether the stock will jump or sink, adjusting their net worths accordingly.
IPOs carry tremendous amounts of risk, and trading publicly begins a new phase in the company's life. Drug development firms add in layers of additional risk -- clinical trial efficacy and safety risks, regulatory risk such as approval by the U.S. Food and Drug Administration (FDA), and reimbursement risk. Small drug developers endure twists, turns, setbacks, and reinventions along the road to hopefully achieving success. Investors in biotech companies aim to achieve outsized returns for assuming this multitude of risks.
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