Markets for both initial public offerings (IPOs) and mergers and acquisitions (M&A) in the biotech sector have been red-hot since last year. The biopharmaceutical industry posted $202 billion in M&A activity last year, with nearly a quarter (23.6%) of companies included on the Nasdaq Biotechnology Index taking part in M&A in 2015.

The data were reported recently by consulting firm BDO USA in its “2015 BDO Biotech Briefing,” which examined recent annual report filings of stocks included on the Nasdaq Biotechnology Index.

Revenue among all biotechs jumped 44% to $67.1 million in 2014, up from $46.6 million the year before. Large biotechs (between $50 million and $300 million in revenue) saw the greatest increase, growing average revenue by 52% to $129.3 million. Small biotechs reported a 7% increase in average revenue, up from a decrease of 21% in 2013.

Novel new drug approvals hit an 18-year high in 2014, with a total of 41 receiving U.S. Food and Drug Administration (FDA) approval. 2015 has continued the high pace of drug approvals, with 29 approvals as of October 2015.

As we might expect, average research and development (R&D) spending is rising to support the costs of developing all those new drugs. Average R&D expenditures for a company on the Nasdaq Biotech Index came to $40.7 million in 2012, rose to $47.1 million in 2013 and jumped to $55.6 million in 2014.

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Debt financing doubled in 2014: 71% of biotechs secured equity financing, whereas only 34% of companies secured financing through the credit markets. But companies seeking debt financing raised an average of $128.6 million, nearly double (97%) the average size of 2013 financings. Companies seeking equity financing secured an average of $104.5 million, up 32% from 2013 with little distinction between large and small biotechs of the average amount raised.

In 2014, biotechs reported an average total shareholder return of 113%, up from 97% the previous year. In addition, the average market cap of companies in the study, at the end of their most recent fiscal year, surpassed the billion dollar mark, reaching $1.14 billion, compared to $881 million in 2013.

Fueled by strong returns and investor appetite, biotech IPO activity was strong in 2014 and the first part of 2015. In 2014, one-in-four of all U.S. IPOs were biotechs, according to Renaissance Capital. Some 29 IPOs in the first half of this year raised $2.9 billion, compared with $2 billion raised during the first half of 2014.

A recent slump in the sector has temporarily stymied the IPO pipeline and caused valuations to drop. Notably, through mid-October, the Nasdaq Biotech Index has declined 23% from its all-time high in July 2015.

Aftab Jamil, a partner and leader of the technology and life sciences practice at BDO, said:

Despite the current slump in biotech stock prices and IPOs, appetite for M&A remains strong, and we can expect deal activity to continue at a moderate pace. The electoral focus on healthcare reform and public frustration around rising drug prices will create some investor hesitation, but increased excitement about drug development presents an opportunity for future industry growth.

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To prepare its report, BDO examined the most recent 10-K filings of companies listed on the Nasdaq Biotechnology Index. Companies reporting more than $300 million in revenue were excluded to ensure findings are representative of the vast majority of companies included in the Nasdaq Biotechnology Index. Remaining companies were divided into two groups — those with more than $50 million in revenue and those with less than $50 million in revenue — to identify trends and key metrics relevant to each group. The average market cap of companies in the study as of the end of their most recent fiscal year is $1.14 billion.

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