Where is the IPO class of 2014-15 now?

The biotech boom years of 2014 and 2015 were happy days for private groups seeking to access capital on stock exchanges, with $11bn raised in 148 initial public offerings. With as much as four years of perspective, it is worth taking a look at how wise it was for investors to have backed some of the biggest floats in those frothy times.

Of the 10 biggest IPOs in those two years, the rate of success to failure is about even, with 10 having suffered losses in valuation, sometimes disastrously so thanks to clinical failures. Nevertheless, the average share price appreciation in both annual cohorts is positive, and strongly so, thanks in part to acquisitions of such sought-after assets as Kite Pharma and Juno Therapeutics, and in part to continued progress shown by companies that remain independent.

Today's collapse of VTV Therapeutics, a 2015 IPO, shows the risk of a publicly traded company being heavily reliant on a single, risky clinical asset, as is the case with many biotechs spotlighted here. Although VTV did not make the top 10 IPOs of that year, its share price decline is on a par with the failures on these two lists.

Insight into winners and losers

Many early investors made their money and exited long before these companies reached the catalysts that sent them either to lofty heights or into the biotech graveyard. Still, their performance should give clues as to the general outlines of companies that on average can yield profits for investors over a four-year time horizon.

Using share price performance as a metric, ZS Pharma must be mentioned as a success, no matter how much difficulty its buyer, Astrazeneca, has subsequently had with the lead asset involved, ZS-9.

On the other hand, it did not take an acquisition to cause Blueprint Medicines share prices to quintuple in price – the company went from preclinical to pivotal trials in just three years and looks like it might have in avapritinib an asset that could take on Novartis’s Rydapt. M&A expectations are no doubt driving the group’s valuation, but as long as avapritinib continues to perform Blueprint could turn out looking a lot like Kite.

Biggest not best

But then there are the disasters. Circassia and Axovant were the biggest biotech IPOs in their respective years, and have respectively lost 71% and 92% of their value thanks to lead projects that flopped. Joining Axovant in holding the wooden spoon in this cohort is Versartis, which tried and failed to show that the long-acting growth hormone somavaratan was at least the equal of daily Genotropin.

It is also fair to say that 11 of these 20 companies have reached clear catalysts that have determined their success or lack thereof. But for Blueprint, along with groups like Global Blood Therapeutics and Fibrogen, to name just three on the positive side of the ledger, the final act has yet to be written as phase III trials of their candidates are still ongoing.

So, given the obvious hit-and-miss nature of investing in big biotech IPOs, what is the key to success? If one were to buy into every one of the top 10 IPOs in these two years the average return would be pretty attractive, with the caveats that one must withstand heavy losses on some investments, and that the top 10 will only be known retrospectively.

However, a good rule of thumb in these two years at the peak of the biotech frenzy was that it took an IPO of more than $120m to make the 10 biggest of the year. Look to companies in that range to find a cohort that has, on average, outperformed biotech in general over this time horizon.

To contact the writer of this story email Jonathan Gardner in Virginia at [email protected] or follow @ByJonGardner on Twitter