Underwriters breathe a sigh of relief as IPOs tick up

If the first quarter had shown worrying signs of waning interest in new biotech flotations, the latest set of data should have investment bankers breathing more easily.

Indeed, the amount of cash that has flowed into new IPOs makes the disappointing Q1 look like a blip (see tables below). However, overall the year is still on track to underperform 2014, and the last quarter has seen continued volatility, with some companies slashing prices to get their offerings away on the one hand, and others posting massive first-day gains on the other.

The second quarter saw 19 groups brave the public markets, and data compiled by EP Vantage show an unusually tepid response to some that might have been expected to generate huge enthusiasm. But others presented far riskier bets, backed by limited data, yet pulled off monster flotations. Perhaps it comes down to who your VCs are, and who is running your IPO.

Q2 biotech IPOs on Western exchanges (all Nasdaq unless stated)
Rise/(fall) since float
Company Date Amount raised Premium/(discount) to range First-day close 30 June close
Adaptimmune April 6  $191m  6% (6%) 8%
Carbylan Therapeutics April 9  $65m  0% 11% 43%
XBiotech April 15  $76m  0% 22% (5%)
Aduro BioTech April 15  $119m  13% 147% 78%
Cidara Therapeutics April 15  $77m  7% 0% (12%)
KemPharm April 16  $56m  (15%) 2% 67%
Sensorion Pharmaceuticals* April 21  €8m  (15%) 0% 202%
Viking Therapeutics April 29  $24m  0% 12% (11%)
Blueprint Medicines April 30  $147m  13% 5% 47%
aTyr Pharma May 6  $75m  0% 7% 32%
CoLucid Pharmaceuticals May 6  $55m  (29%) (20%) (11%)
Collegium Pharmaceutical May 7  $70m  (8%) 2% 49%
Verseon** May 7  £66m  5% 9%
Axovant*** June 11  $362m  7% 99% 36%
Nivalis Therapeutics June 17  $77m  0% 7% 8%
Ritter Pharmaceuticals June 24  $24m  (55%) (1%) (11%)
Catabasis Pharmaceuticals June 25  $60m  (14%) 8% 2%
Seres Therapeutics June 26  $134m  13% 186% 131%
Abivax* June 26  €44m  (1%) (1%) (5%)
Notes: *Euronext; **Aim; ***NYSE.

Two US biotechs illustrate untempered enthusiasm: Blueprint and Axovant. Backed by Third Rock Ventures, Blueprint listed with no clinical assets and just a small pipeline of preclinical kinase inhibitors, yet managed to attract $147m in an IPO that is still well in the money.

And the eight-month-old Axovant, despite flying numerous red flags, brought in an astonishing $362m (Still don’t believe in a biotech bubble? Check out Axovant, June 12, 2015). Still, the success of Axovant was probably down to two funds, RA Capital and Visium Asset Management, publicly expressing an interest in buying the stock – an unusual move.

Axovant stock ended the quarter 36% above the float price, but those who bought into the post-float enthusiasm have already been burned. Today the shares stand 35% below the first day’s close, and further carnage might ensue once the IPO investors’ lockup expires.

Nasdaq premium/(discount) to IPO price range
Period Average 
Q1 2012  (26%)
Q2 2012  (31%)
Q3 2012  (21%)
Q4 2012  (17%)
FY 2012  (24%)
Q1 2013  (23%)
Q2 2013  (12%)
Q3 2013  (6%)
Q4 2013  (31%)
FY 2013  (15%)
Q1 2014  (9%)
Q2 2014  (18%)
Q3 2014  (16%)
Q4 2014  (9%)
FY 2014  (12%)
Q1 2015  (7%)
Q2 2015  (5%)

Axovant and Blueprint both listed above their indicated range. A look at the long-term picture shows this still to be the exception rather than the rule, at least on Nasdaq, though on average the discount to the proposed range has come down versus last year.

If this is just a matter of managing investors’ expectations then the underwriters of Colucid and Ritter did pretty badly, both companies taking significant haircuts. Colucid's post-IPO performance is perhaps in keeping with its focus on the risky area of CNS disease, although it shares the title of biggest flop in Q2 with Ritter as both have seen double-digit declines on top of disappointing debuts.

Less easy to understand, however, is the tepid response to the flotation of Adaptimmune, given its focus on the red-hot field of engineered T-cell receptor therapeutics. Perhaps the stock’s performance reflects the large amount raised, relative lack of clinical data and the company’s non-US origin.

Certainly there is little in the Q2 figures to suggest more than a mild uptick in enthusiasm for biotech flotations outside US exchanges, though the Californian firm Verseon took the highly unusual step of listing on London’s Aim. France’s Sensorion and Abivax showed that European exchanges are open for business, though their Euronext Paris IPOs predated the intensification of the Greek debt crisis.

Clear winners

Thus it is not too surprising that what look like Q2’s two clear winners – the oncology player Aduro and Seres, whose projects target the microbiome – are both US biotechs that listed on Nasdaq.

Given the massive licensing deal that Aduro struck with Novartis on the eve of its IPO, it is a fair question to ask how the group avoided being bought out and floated to begin with (Pre-IPO Sting gives Novartis a stake in Aduro, March 30, 2015).

But as long as biotechs are given enough investor support they will continue to push hard in licensing. While the Q2 crop will undoubtedly face volatility once lockups expire, the recent $1bn tie-up between Juno and Celgene shows that nothing can be ruled out in the current market.

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

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