First-half 2013 saw healthy Initial Public Offering (IPOs) activity and free-flowing venture capital in the US pharmaceutical sector, but licensing deals – the industry’s lifeblood – stalled, signalling that rising valuations could be pricing buyers out of the market, says a new report.

The six-month period saw exceptional growth in the Nasdaq Biotechnology Index, a key valuation metric of small and medium-sized companies, says the study, from Evaluate’s editorial arm, EP Vantage. The Index exceeded its previous record of 1,596.93 set 13 years earlier, growing 27% to June 30, nearly equal to its growth for the whole of 2012. The Dow Jones US Pharmaceuticals Index showed similar gains at 21%.

“Compare this with the gains of 14% and 13% for the Dow Jones Industrial Average and S&P 500 respectively, and the amount of investment rushing into the pharma sphere becomes even more apparent,” the study notes.

It also reports that US IPO activity continued increasing in first-half 2013, with 20 firms floated against just 16 in the whole of 2012, and that the industry raised $2 billion in venture capital, two-thirds of which came in the second quarter.

There was $29 billion worth of merger and acquisition (M&A) transactions in the period, putting 2013 on track to be the best year since 2010 (excluding mega-mergers), while US product approvals nearly matched the encouraging pace of 2012, with 17 approved by June 30, it adds.

Meantime, an industry expert forecast this week that the current financing cycle for life science IPOs could be at the half-way point, with a measurable increase in activity in the coming months.

IPO “windows of strength” are periods characterised by six months or more of above-average issuance with a relative absence of IPO withdrawals and postponements, said Christine Gallagher, managing director, equity capital markets at US corporate and investment bank SunTrust Robinson Humphrey.

“Although we have seen these conditions since March, issuance windows tend to gain momentum as the timeframe progresses, indicating the most active portion of the current window may be yet to come,” she said.

“Over the last 15 years, there have been four substantial life science IPO windows before this one, lasting from six to 20 months, with an average of 12 months. March 2013 kicked off the current window, indicating that this window may have substantial additional prime opportunity for issuance,” added Ms Gallagher.