| When most companies go public, they are somewhat mature. They typically have earnings and cash flow. Tech company initial public offerings, or IPOs, are a bit different. These companies are often not yet profitable. And biotech IPOs are a special animal altogether. Not only are the companies not usually profitable, but most of the time, they don't even have a product on the market yet. For example, in May, Acelyrin (Nasdaq: SLRN) raised $540 million in an IPO. The stock is up more than 33% since then. The company's lead drug is being studied in a variety of conditions, including psoriasis and inflammation in the eye. The drug is in Phase 2 trials. When things work for these small cap biotechs, it can be insanely lucrative. Take Pharmacyclics, for example. The company, focused on treating cancer, went public in 1995, offering 2.15 million shares at $12 per share and raising a little more than $25 million. It wasn't until 14 years later that Pharmacyclics conducted its first human trials of ibrutinib, which went on to become the company's first Food and Drug Administration-approved product in 2014 and a blockbuster drug. The following year, AbbVie (NYSE: ABBV) acquired Pharmacyclics for $21 billion. If you had bought shares of Pharmacyclics on December 7, 2009, after the company presented positive results from a Phase 1 study, you would've paid $2.35 per share. A little more than five years later, the company announced it was being acquired and you could have sold for $230.48 per share. Of course, you would have had to hold on to a very speculative stock for more than five years to do it. But even if you had sold pieces of the position off over the years and were left with a fraction of the original position, you would have done extremely well. Medivation is another great example. Medivation IPO'd on December 20, 2004, at $1.55 per share. On August 22, 2016, shares peaked at $326.00. That means investors who got into Medivation at the IPO price of $1.55 a share could have seen a staggering 20,932% increase on their holdings. Pharmacyclics and Medivation are the exceptions, though, not the rule. Most early-stage biotech companies never have that kind of success. Many never get a drug on the market. In fact, a drug entering human trials has about only a 1 in 10 chance of being approved. So it makes sense that the rewards need to be large to take on that kind of risk. | 
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