So much for the August slowdown. Just when it seemed that a dribbling away of confidence during the traditional August lull might turn into a slow collapse of the bull market, biotech has roared back with a vengeance.
It must have helped that Roche, the most conservative of buyers, is firmly in the M&A game – and willing to pay top dollar to boot. Nearly every biotech is now an acquisition target, IPO bankers are back in business, and the Nasdaq biotech index has shrugged off the bearishness of the Fed chair, Janet Yellen, to beat the record high it hit in February.
Though the market’s latest climb began on August 13 the defining moment came last Sunday when Roche splashed out a barely credible $8.3bn to take over InterMune (Roche’s pricey move reinvigorates biotech fever, August 26, 2014). It had earlier bought Seragon and Santaris; neither was a cheap, risk-free business.
The contrast with the Swiss firm’s earlier caution could barely be more striking. Last October the group’s chief executive, Severin Schwan, said biotech valuations had left people at Roche “scratching our heads”, while his finance chief, Alan Hippe, told EP Vantage that analysts’ bullish expectations underplayed the risks.
Have we just seen a major strategy U-turn or was the group simply toying with investor sentiment to get a better price for its acquisition targets?
It probably matters little. What is clear is the effect that Roche’s stance has had on sentiment, which has buoyed numerous biotech names in recent weeks, including many that were already looking distinctly overpriced, such as Puma Biotechnology and Clovis Oncology.
And it has not stopped there: the IPO market has reawakened, with bankers moving fast to push more biotechs through a wide-open window. The point is well illustrated by the speed with which the cash has started flooding in.
Take Dermira, a US biotech focused on dermatology – a therapy area well known to be in acquirers’ crosshairs, thanks largely to the efforts of Valeant. Dermira yesterday filed to raise up to $75m in an IPO, barely eight days after closing a $51m series C financing.
A similar case in point is Civitas Therapeutics, a spin-out from Alkermes, which on August 26 submitted documents to the SEC to raise $86.3m. Civitas’s $55m series C, to support phase III studies of CVT-301, a lead project for Parkinson’s disease, was closed only one day earlier.
Also filing to list on the public markets yesterday were Calithera Biosciences and Rhythm Holding. The former aims to develop small molecules directed against tumour metabolism and immunology, but has just one clinical project, the phase I glutaminase inhibitor CB-839 targeting solid and haematological cancers; it wants to raise up to $80m.
Rhythm is asking for up to $86.3m to advance a small portfolio of peptide therapeutics targeting gastrointestinal diseases and metabolic disorders, including obesity and type 2 diabetes. Meanwhile, one of the most closely watched biotechs that have yet to show their IPO hand is Juno Therapeutics; Kite Pharma, its competitor in CART technology, floated in June.
The fact that the IPO window is still open, after arguably much stronger investments got through it earlier in the year, is one of the more remarkable signs of the resilience of the current market. After Nasdaq biotech’s bull run, observers who at the start of 2014 said the index would end the year flat or only slightly down were judged to be optimistic.
With the index up 21% year to date, that so-called bullishness looks to have been nowhere near optimistic enough.