IPO flurry raises valuation gap questions

The US biotech sector has been riding a wave of investor enthusiasm ever since the $11bn acquisition of Pharmasset by Gilead Sciences in 2011, but one vital element has been missing: a resurgence of biotech flotations.

This could be about to change, judging by a flurry of recent IPOs and listing contenders. But no sooner does the IPO window creak open than worrying signs of valuation gaps appear. In the case of Portola Pharmaceuticals and Prosensa – two companies with big pharma partners that are obvious buyers – the move to float looks suspiciously like a failure to sell.

Of course, what this tells us about the companies in question is less obvious. But one conclusion is that biotechs are pitching a takeover to their partners, who decline to pull the trigger at the desired price, whereupon companies manage to extract greater value in a float.

Different story

In the past six months alone the Nasdaq Biotechnology Index has surged 33%, but despite this as recently as in April there were worrying signs of a stagnant IPO market. The few companies that did list tended to do so via price haircuts (IPO numbers stall as 2013 gets under way, April 3, 2013).

While the nine healthcare companies that have floated in the current quarter have hardly overwhelmed on pricing, their after-market performance has been a different story. Six are in the black, including the CRO Quintiles, up 8%, antiviral developer Chimerix at 17% and, after just four days’ trading, Portola boasting a 20% surge.

Omthera Pharmaceuticals is up 82% after yesterday’s remarkable news that it was being taken over by AstraZeneca, having spent less than seven weeks as a listed entity. This alone backs the argument that a float can be used to set a baseline valuation and extract a higher takeover price.

It will surely be the logic that investors in Portola and Prosensa, the Dutch company that filed for a $60m Nasdaq IPO last week, will be clinging to.

After all, Portola has five big partners on board – Biogen Idec, Bristol-Myers Squibb, Pfizer, Bayer and Johnson & Johnson – and yet a buyout has not materialised. Likewise, Prosensa’s Duchenne muscular dystrophy project drisapersen is being developed with GlaxoSmithKline, and some might question the UK firm’s apparent reluctance to buy its junior partner and avoid the future payment of up to £412m ($621m) in milestones.

It is not as though Glaxo is averse to making small acquisitions, as today’s move on Okairos shows. But in the case of the Swiss vaccine developer, the UK giant was driven by a desire to own a technology platform rather than a single project; by comparison, thanks to its 2009 licence with Prosensa, Glaxo effectively controls drisapersen already.

Prosensa investors banking on a takeover might ponder Glaxo’s deal with Theravance, which has not resulted in a buyout and is effectively stymying other potential bidders. One worry is that any takeover will only come at a more realistic valuation.

On the other hand, perhaps the assets involved still carry too much risk; Portola’s factor Xa inhibitor betrixaban and antiplatelet agent elinogrel had been partnered with Merck & Co and Novartis respectively, but these deals were terminated.

Future triggers

Instead, IPO candidates will have to look to future successes to provide takeout triggers. Portola’s current prospects centre on the blood thinner antidote PRT4445, which is the subject of two three-way big pharma tie-ups. The company raised $123m last week, valuing it at $469m.

The next biotech listing could come this week in the form of Epizyme, which wants to raise $74m after last year striking a preclinical deal with Celgene worth an impressive $90m up front. The gene therapy player Bluebird Bio is seeking to raise $86m, while Esperion Therapeutics, a Pfizer spinout, is targeting a $70m IPO.

The Israeli firm Kamada, already listed in Tel Aviv, is looking to raise $60m on Nasdaq; like Prosensa and the UK biotech GW Pharmaceuticals, Kamada is going where the money is.

The takeover thesis still exists for all of these companies, and only their final valuations are unknown. All the US investors concerned have to do is time their exits right.

EP Vantage’s quarterly review of pharma and biotech IPOs will be published in July.

To contact the writer of this story email Jacob Plieth in London at jacobp@epvantage.com or follow @JacobEPVantage on Twitter

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