Any fears of a late cooling off in an exceptional year for IPOs have failed to materialise as the companies that braved the markets in the fourth quarter raised an impressive $1.81bn. The unexpectedly strong finish to the year now makes 2014 one of the best for company launches since the 2000 genomics bubble, when US biotechs alone raised $5.5bn.
The quarter’s $1.81bn dwarfs the $1.44bn raked in during the third quarter, which itself had been the second-best haul since the start of the biotech bull run. But what makes the total impressive is that it was achieved with just 17 companies making their stock market debut – down from 24 in the Q3. This indicates that while there might have been fewer candidates, investors' appetite for the sector remained, especially for companies like Juno Therapeutics.
Of course, the $6.3bn amassed this year could be an exception. But, with market conditions looking like they are holding up despite significant setbacks, companies are almost certain to continue to file to market, which could make 2015 another strong year for IPOs.
But it was not just that companies managed to capture large sums of money. Further analysis from EP Vantage shows the improving trend for IPOs in 2014.
Of the companies that listed on Nasdaq in the last quarter the average discount to the IPO range was 12%, below the 15% seen in 2013 and a considerable improvement on the 24% haircut companies were forced to take in 2012.
This shows that while there is still some disconnect in the prices companies want to achieve, both investors and bankers are becoming more realistic in their expectations for valuations of companies.
|Nasdaq premium/(discount) to IPO price range|
However, the averages do not tell the full story; Vascular Biogenics, for instance, had to take a 57% haircut to get to market, but this was counterbalanced by Juno Therapeutics, one of the standout IPOs of the year. Juno managed to make its debut at 45% above its initial IPO range and raised $304m to boot, a figure only surpassed by Circassia’s record-breaking $332m float earlier in the year.
Bellicum Pharmaceuticals also beat expectations, largely helped by the fact that, like Juno, it is operating in the current white-hot field of CAR T-cell therapies. Demonstrating the interest in this field, both from investors and big pharma, today Kite Pharma signed a $60m up-front research deal with Amgen.
Interestingly, the fourth quarter finally saw increased IPO activity outside the US, with four of the 17 floating companies originating in Europe. Traditionally it has been the case that the opening of the IPO window in the US is eventually followed by increased flotations in Europe, but this trend had been slow to materialise.
Whether this fledgling movement will continue is anyone’s guess, especially given the lack of specialist investors in the region and the less than stellar historic returns from the sector. But for companies with strong pipelines the example of Molecular Partners should offer some hope. The Swiss group managed to bag $117m in new funding on its entry to the SIX.
European companies looking to float and worried about the risk appetite in the market might continue to follow the trend of listing in the US. Using this strategy the Danish company Forward Pharma netted an impressive $235m.
|Q4 biotech IPOs on Western exchanges (all Nasdaq unless stated)|
|Rise/(fall) since float|
|Company||Date||Amount raised||Premium/(discount) to range||First day close||31 December close|
|Vascular Biogenics||Oct 01||$46m||(57%)||(3%)||(2%)|
|Calithera Biosciences||Oct 02||$92m||(29%)||(6%)||102%|
|Atara Biotherapeutics||Oct 16||$63m||(27%)||(3%)||143%|
|Forward Pharma||Oct 15||$235m||0%||(17%)||(1%)|
|Proteon Therapeutics||Oct 22||$70m||(23%)||0%||4%|
||Oct 27||€23m ($30m)||(11%)||55%||26%|
||Nov 05||SFr113m ($117m)||(15%)||3%||12%|
|Xenon Pharmaceuticals||Nov 05||$41m||(18%)||33%||119%|
|Coherus Biosciences||Nov 06||$92m||0%||12%||21%|
||Dec 08||£32m ($50m)||-||3%||(1%)|
|Juno Therapeutics||Dec 19||$304m||45%||46%||118%|
Looking at the fourth quarter, and indeed the full year, it is not just that companies got away with lower haircuts on average and raised a lot of money, but their shares have mostly remained buoyant since.
With the exception of four stocks the companies that floated in the quarter are trading higher than their float price, and some have managed to more than double their IPO price. Calithera's rise was due to preclinical results for its phase I breast cancer project CB-839, and Juno again benefited from the seemingly insatiable investor appetite for all things CAR-T-cell related.
Perhaps the biggest demonstration of the strength of the current biotech market is that, not only is the average share price rise since float for all the companies listing in the fourth quarter 37%, but that across the year there has not been an average quarterly fall in share prices following IPO.
Will this buoyance continue into 2015? Logic says there should be some form of correction, but the sector has demonstrated time and time again that logic is not a limiting factor, despite recent volatility.
|2014 share price summary by quarter|
|Average rise/(fall) since float|
|Period||Average amount raised ($m)||Average discount/premium across all exchanges||First day close||31 December close|