IPO prices sheared as companies continue to take haircuts

Analysis

It may be early days but Hyperion Therapeutics, one of the few drug developers that has dared to IPO this year, has so far seen its shares stay above their float price. But like the majority of the other nine companies that have so far completed successful public listings in 2012 it has come at a cost - Hyperion had to take a 17% "haircut" to its filed price just to get the share sale away in the first place.

The difficulty in achieving a stock market listing this year has meant small drug developers have taken on average a 21% haircut or reduction to their initial file prices, as public investors have refused to accept their original valuations. Upcoming IPOs, such as the spin out of Elan’s drug discovery unit Neotope, will be watched with interest for any sign of recovery. If a company like Neotope, which will be bankrolled to the tune of $120m-$130m to help guarantee interest, fares badly there is little hope of an easier life for others waiting in the wings, trying to get by without the help of generous parents.

A little trimming

There were eight listings in the first half of 2012 (those of of Hyperion and Durata Therapeutics, included in the table below, occurred in July), a fall from the 11 achieved in the same period last year (Tough IPO scene continues in first half 2011, July 21, 2011). And once again this year it was all about the negotiation between company and investor - all but one managed to float without having to trim its initial filed prices.

The most severe short, back and sides belonged to Supernus Pharmaceuticals, a spin out from Shire specialising in epilepsy and ADHD, which filed at $12-$14 but eventually reached the market at $5 a share. Following hot on its heels was Cempra Holdings which took a 50% haircut on its offer price.

The only group to buck the trend was Adocia, which managed to float at $21.20, at the top of its $17.30-$21.20 price range. But in an interesting reversal of fortunes, investors who did take a punt on the heavily discounted Supernus bought into the best performer of newly launched pack, with the stock increasing in value by 150% since floating. This brings them back to the level of their original filing price, suggesting that while bankers may have for once got the pricing right, investors were at the time still wary of risky biotech stocks.

Supernus has been helped by the fact it has three filed products in its portfolio and in July received tentative approval from the FDA for Trokendi, formerly known as SPN-538, an extended release generic version of Johnson & Johnson’s epilepsy drug Topamax. While this might not be able to launch before July 2013 thanks to paediatric exclusivity still held by J&J, Supernus also has another product that could make it to the market by the middle of 2013. Epliga, an extended release version of Novartis’ Trileptal, is up for approval in November and if successful could launch in the first quarter of 2013.

Adocia has in turn fallen by 57% since its debut, despite recently reporting a big jump in turnover thanks to licensing deals for its fast acting insulin product HinsBet.

Share price performance

While Supernus’s stellar performance has meant that the average year to date share price performance is up 9%, if it is taken out the picture is one of an overall decline.

One of the factors that may have kept newbie, Hyperion, in the black and helped it to float is that it is company specialising in rare diseases, in particular Ravicti, its treatment for chronic management of urea cycle disorders. Interest in orphan indications is high among both investors and big pharma companies and has helped the likes of MolMed and Aegerion Pharmaceuticals achieve stock market listings over the last five years.

But this year has also shown that being too niche and too experimental can be detrimental. So far this year there have been four pulled IPOs, including Stemline Therapeutics and one of the bigger hopes in the sector, Rib-X Pharmaceuticals. This compares with the five European and US companies that tried and failed in 2011, indicating that with a much reduced appetite for risk among investors, companies continue to bide their time.

More hopefuls

The current economic difficulties have not put off everyone, and a number of companies still plan to launch themselves on global stock markets. One of the largest anticipated floats will be that of OncoMed Pharmaceuticals.

A number of Chinese companies are also hoping to raise significant amounts of equity this year, including Shanghai Fosun Pharmaceuticals. The maker of liver, diabetes and anti-infectious drugs is looking for up to $600m when it eventually lists in Hong Kong. It will be interesting to see if the proposed Chinese IPOs do come off given the recent weak domestic economic data that has emerged and that has slowed the pace of new listings in the region, according to IPO trackers Renaissance Capital.

Company IPO Date Raised ($m) Float Price ($) Filed Price ($) Haircut Latest share price ($) YTD share performance
Verastem (VSTM) 27 - Jan - 12 63.3 $10 $9-$11 0% $8.92 -11%
Cempra Holdings (CEMP) 03 - Feb - 12 58 $6 $11-$13 -50% $7.60 27%
ChemoCentryx (CCXI) 08 - Feb - 12 63.8 $10 $14-$16 -33% $11.02 10%
Adocia (ADOC) 13 - Feb - 12 33.6 $21.2 $17.3-$21.2 10% $9.14 -57%
DBV Technologies (DBV) 29 - Mar - 12 50 $11.7 $11.7-$14.2 -10% $9.74 -16%
Merrimack Pharmaceuticals (MACK) 29 - Mar - 12 100.1 $7 $8-$10 -22% $7.38 5%
Supernus Pharmaceuticals (SUPN) (Shire spin out) 01 - May - 12 50 $5 $12-$14 -62% $12.48 150%
Tesaro Inc. (TSRO) 28 - Jun - 12 81 $13.5 $12-$15 0% $13.42 -1%
Durata Therapeutics (DRTX) 19 - Jul - 12 68 $9 $11-$13 -25% $7.35 -18%
Hyperion Therapeutics (HPTX) 26 - Jul - 12 53.5 $10 $11-$13 -17% $10.35 4%
Average 62 -21% 9%

To contact the writer of this story email Lisa Urquhart in London at lisau@epvantage.com

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