Last week’s flurry of biotech IPO activity – capped off by Circassia’s announcement that it intends to rewrite the UK’s record books – looks even more incredible when put into the context of recent years. The eight listings are half of 2012's entire number of floats and over half 2011’s. And with most getting away in their filed range or above the turnabout in investor sentiment within three years is clear.
It would be easy to say that the sheer number of debuts is a sign that companies are rushing to float for fear that the IPO window is about to close, but as filing timelines are lengthy this is not necessarily the case. Given that biotech venture funds have struggled to raise money while public equities boom, it is clear which sector has the higher tolerance for risk (Venture investments stabilise in 2013 but the winners increasingly take all, February 4, 2014).
Winners and losers
The eight companies floating on Nasdaq last week had the misfortune of launching onto choppy waters, and their results by week’s end are an expression of this.
|Biotech IPO craze|
|Company (ticker)||Date||Amount raised||Float price||Filed price||Gain/loss at Feb 7 close|
|uniQure (QURE)||February 5||$82m||$17||$13-15||–12%|
|Auspex Pharmaceuticals (ASPX)||February 5||$84m||$12||$10-12||22%|
|Genocea Biosciences (GNCA)||February 5||$66m||$12||$12-14||–4%|
|Biocept (BIOC)||February 5||$19m||$10||$10-12||–8%|
|Egalet (EGLT)||February 6||$50m||$12||$11-13||–2%|
|Revance Therapeutics (RVNC)||February 6||$96m||$16||$14-16||26%|
|Eleven Biotherapeutics (EBIO)||February 6||$50m||$10||$13-15||10%|
|Argos Therapeutics (ARGS)||February 7||$45m||$8||$13-15||–13%|
Registering significant gains on the week were Auspex Pharmaceuticals, Revance Therapeutics and Eleven Biotherapeutics, each with double-digit rises. Losses were in order for the remaining five, although Egalet and Genocea Biosciences’ seem in order with the Nasdaq biotechnology index, which at a 3.2% rise on the week is not quite in line with current expectations surrounding this key tech indicator.
Still, with only Eleven and Argos Therapeutics taking haircuts the week’s work is an improvement on even the heady state of 2013 IPOs, when half of the 44 companies floating did so at a discount on their filed price – with the average discount at 13%. The public markets have become attractive enough that the late G and H venture rounds that substituted for IPOs in earlier years have gone into decline (Soon-to-be-publics top VC rounds of 2013 while seed funding shows an uptick, February 5, 2014).
It also should be noted that six of the 10 companies at the receiving end of the most generous VC rounds of 2013 – including last week’s Revance – have gone public or signalled their intention to do so. The munificence of their venture backers is no doubt a sign of their appeal to the public markets.
Public vs private
The bumper IPO crop comes in the wake of better news on the venture funding front as some rather healthy fund raisings were reported in 2013. What has not necessarily materialised is an uptick in the number of new financings of private developers; it might be difficult to persuade investors to take the long view of the venture backer when the attraction of short-term biotech profits is so strong.
A public floatation is not necessarily an exit for venture backers either, given the usual lockup requirements and the danger of devaluing their own investments and those of fellow investors should they sell off large chunks of shares. Given last year's 44 IPOs, it could be some time before those companies’ VC investors can completely exit and recycle profits into new projects.
The interplay of venture financing versus public equities continues to be intriguing. Biotech euphoria shows no sign of abating just yet, and, as long as public investors are comfortable with the risks, IPOs should continue at their vigorous pace.