With the spring wobble in the rearview mirror biotech companies hit the IPO gas once again in the third quarter. Drug developers floating on Western exchanges raised $1.4bn in the period, the second-biggest quarterly haul seen in the current bull market.
The surge from the previous three months was driven by volume – 24 companies floated in the period, up from 15 in the second quarter – while the average raised, around $60m, remained steady. The current run rate for the year suggests that 2014 will come close to challenging the genomics bubble in 2000 for its IPO record; that year US biotechs alone raised around $5.5bn.
Investors’ enthusiasm for these new issues shows no sign of waning and there is a long queue of companies awaiting life on the public markets. So unless broader market conditions take a turn for the worse there is no reason to believe that the final months of the year will disappoint, although historical data suggest that this does tend to be a quieter quarter.
This analysis tracks IPOs by companies developing human therapeutics – it excludes medtech or diagnostic firms – on Western exchanges. This quarter also excludes the flotation of Catalent, which is more of a services business, and which raised $1bn in July.
Data collected by EvaluatePharma and EP Vantage only go back as far as 2011; for 2000, sources including Credit Suisse analysts mention a tally of $5.5bn raised in the US, by around 63 companies. They note that the average IPO netted $84m that year.
The total run rate so far this year by companies in our analysis is $4.5bn by 70 companies, for an average $64m raised. The US counts for 87% of the total raised so far this year, or $3.9bn.
So while the genomics bubble might not be bested in the US alone, a broader look at the sector suggests that the amounts raised will be close.
What is markedly different is the average amount raised, even more so given that the $84m quoted for 2000 is unlikely to be inflation adjusted.
The $60m average for the third quarter is the lowest registered for 2014, although the first quarter’s $69m average was boosted by the flotation of Circassia, whose London listing, which raised $332m, remains an outlier.
Investors’ relatively less generous stance in 2014 supports the notion, claimed by many despite much evidence to the contrary, that valuations and expectations have not hit the heady heights seen at the turn of the millennium.
|Nasdaq premium/(discount) to IPO price range|
The analysis above makes it clear that businesses are frequently unable to command the valuation they desire. The recovery in sentiment towards these companies can be seen markedly in the shift in average from 2012 to 2013, although it looks like this has not continued to warm over 2014.
These averages of course mask big differences. Pfenex, Foamix and Auris Medical were valued at around half their initial proposals. At the other end of the scale Sage Therapeutics and Avalanche Biotechnologies got 20% more than they asked for.
Share price performances after flotation, in the thumbnail below, also reveal a mixed bag of performances. Sage and Avalanche continue to outperform the group; the latter has already doubled in value. BioBlast Pharma and Innocoll, meanwhile, have failed to capture investors’ imaginations.
Overall, however, the group as a whole is trading in positive territory. And the Nasdaq Biotechnology Index continues to display rude health, touching a record high of 2,923 on September 24. All which bodes well for companies waiting to float in the final quarter of 2014.