No clinical assets? No problem

Analysis

When the cancer-focused biotech company Blueprint Medicines floated on Nasdaq last week it had yet to test any of its projects in a single patient, but this did not stop it from pricing above its range, raising $147m and enjoying a first-day share price bump.

This might seem glaringly paradoxical, but an analysis of EvaluatePharma of recent flotations suggests otherwise. Indeed, the lack of any clinical-stage assets does not appear to affect the success of a biotech IPO, either in terms of amount raised or valuation uptick (see tables below).

That said, flotations of companies with solely preclinical assets remain a rarity; the analysis below, concerning IPOs from the start of 2013 until the end of 2014's first quarter, shows only four such early-stage entrants. Overall during this period, when the biotech bull market truly started to boost new issues, 100 biotechs listed on Western exchanges.

Thin supply

The bull market has undoubtedly helped preclinical companies get off the ground as the crop of later-stage investments thinned and investor demand seemed at times to outpace supply.

But if you are a preclinical biotech seeking an IPO it also helps to have the right VCs behind you. A case in point is Agios Pharmaceuticals, whose private backers included Third Rock Ventures and which at the time of its 2013 float had a cancer metabolism-focused pipeline that was still at the preclinical stage.

In the event Agios floated at well above its price range, securing an average 228% valuation increase for its private backers, and currently stands up some 450% on the IPO price. Clearly already having Celgene as a partner helped, as did subsequent reporting of impressive clinical data (ASH – Recent biotech floaters show their worth, December 08, 2014).

But the Third Rock link is interesting. Third Rock also backed Blueprint, whose float is not included in this analysis since it occurred after the end of Q1. Not only does Blueprint not have any clinical assets, its portfolio comprises kinase inhibitors – definitely yesterday’s technology; yet it is now worth $567m, and pre-IPO investors got an average 176% valuation gain at float.

Braving the public markets with no clinical assets*
IPO date Company Amount raised ($m) IPO price range IPO price Valuation bump up at IPO Share price change since IPO
24 July 2013 Agios Pharmaceuticals 106 $14-$16 18.00 228% 424%
18 September 2014 ProQR Therapeutics 112 $11.00-$13.00 13.00 218% 95%
30 January 2014 Dicerna Pharmaceuticals 90 $11-$13 15.00 44% 60%
29 July 2014 ContraFect 41 $5.00-$6.00 6.00 39% -14%
*Between 2013 and end of Q1 2015. Source: EvaluatePharma, SEC filings.

Of the four preclinical-stage new issues in the EvaluatePharma analysis only ContraFect is currently trading below its IPO price. Jason Kolbert, an analyst at Maxim – the IPO’s sole bookrunner – recently highlighted management changes at the anti-infectives company as a “red flag”.

Overall, of course, anti-infectives businesses have not fared badly at all, the 12 companies falling into this category, which includes Intrexon, Pfenex and Adamas Pharmaceuticals, rising 31% after flotation on average. It is not surprising to see oncology as a therapy area leading the way in average cash raised at float and post-IPO performance.

Notwithstanding ContraFect and the low number of preclinical-stage IPOs in general, the 141% average post-IPO performance of the four companies that had no clinical assets when they floated is remarkable. The markets must already be on the lookout for the next preclinical-stage Third Rock float.

IPO performance by development stage and therapy area
Avg raised in IPO ($m) Avg price change since IPO* No of companies 
All IPOs** 81 52% 100
Phase III companies*** 94 88% 23
Phase II companies**** 81 39% 55
Phase III + II companies 85 53% 78
Preclinical companies 87 141% 4
Oncology companies 87 48% 23
CNS companies 55 15% 11
Systemic anti-infectives companies 67 31% 12
*as at end Q1; **2013 to Q1 2015; *** whose most advanced asset is in phase III; ****whose most advanced asset is in phase II.

To contact the writers of this story email Jacob Plieth or Edwin Elmhirst in London at news@epvantage.com or follow @EPVantage on Twitter

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