It would have been hard to have a worse year than 2016, with its measly IPO haul, and 2017 has successfully avoided that fate. Though well below the frothy exuberance of 2014 and 2015 the $3.9bn raised across last year looks like a return to business as usual for companies wishing to make their public debut.
And the continued upward trend in quarterly flotations (see charts below), which culminated in one of the strongest fourth quarters since 2014, indicates that the IPO window is opening wider, with public offerings mirroring the improving health of biotech equity indices. Investors must now be hoping that this trend continues into 2018.
Gone, it seems, are the uncertainties of 2016 which put a brake on the sector, as companies grappled with the unknowns of whether pricing would make it onto the political agenda along with tax reform and the proposed changes to US health insurance coverage. With the White House apparently taking a step back from interfering with health care following the defeated attempt to repeal the Affordable Care Act, investor appetite for drugmaker stocks has returned. This resulted in the Nasdaq biotech index finishing the year 18% higher.
Encouragingly for those looking for continued momentum on the bio-pharma IPO front a number of companies have already announced their intentions to float in early 2018. Those lining up include Menlo Therapeutics, Entera Bio, Adial Pharmaceuticals and Eyenovia, while Cue Biopharma kicked off the new year by raising $66m and seeing its shares rise more than 50% on January’s first day of trading.
Denali’s ability to drum up $250m from investors, resulting in the biggest IPO in 2017, will only have increased the confidence of those waiting to list, especially as the group operates in the high risk CNS area. This focus is continuing to pay dividends, with Denali earlier this year announcing an upfront $150m collaboration with Takeda.
|Q4 2017 biotech IPOs on Western exchanges (all Nasdaq unless stated)|
|Company||Date||Amount raised ($m)||Offering price ($)||Discount/ premium||First-day close||YE 2017 chg since float|
Another 2017 winner was Apellis Pharmaceuticals, whose second bite at the IPO cherry resulted in a $150m raise and stock that finished the year up 55%, a remarkable comeback from a company which was forced to abandon its IPO plans in 2016, citing poor market conditions.
Rhythm Pharmaceuticals saw its concentration on rare diseases pay off with the shares finishing the year 71% higher, showing that companies can make progress in the markets outside of the world of oncology.
|Biotech IPO market by year|
|Year||No. of IPOs||Amount raised ($bn)||Avg. amount raised ($m)||No. raising >$100m|
A further boost to the assurance of private companies assessing their chances in 2018 can be gleaned from the number of IPOs raising $100m+ in 2017. This figure hit 15, up from the three in 2013 and comparing well with the 17 companies who jointed the $100m+ club in 2015, at the height of the biotech boom.
It should also be noted that 2017 was the best period in five years for companies achieving their proposed offer price. Discounts to IPO price ranges were just 3% across the year, a stark contrast to dark days of 2012 when the average discount hit 24% as companies struggled to list in the wake of the financial crisis.
During the year the average amount raised reached $77m, although this was at the expense of the number of IPOs, indicating investors were keen to make fewer, but bigger, bets on companies looking to list.
Some might, however, argue that the lack of discounts could be due to companies finally realistically pricing their offerings, heading off investors’ concerns about rising valuations in the wider market.
|Nasdaq premium/(discount) to IPO price range|
If companies continue to set realistic expectations, politicians remain hands-off, the friendly regulatory environment continues in 2018 and Moderna Therapeutics surprises everyone with an IPO – this last a big if – then this year could be another stellar period for IPOs.