Floats rise out of the biotech bubble at last

After a gestation of over a year the US surge of investor enthusiasm looks finally to have elicited a flurry of biotech flotations, the lack of which had until now marked a major difference between the current biotech bubble and the one seen in 1999/2000.

And not only have the last few biotechs managed to float near the top of their price ranges, several have seen an astonishing aftermarket performance (see table). Venture capitalists will take pleasure in seeing that an avenue exists for the companies they have backed to realise a higher valuation than in a trade sale, even if this means that they are left holding the baby for now.

June bloom

In contrast to the start of the year, where floating biotechs still had to contend with price haircuts, all four IPOs in June were done at or above the middle of their proposed ranges. Even more impressively, all are now in the black, and two – Bluebird Bio and Prosensa – have climbed almost 50% in under three weeks.

The previous month saw no fewer than eight biotechs brave the stock exchanges, putting an end to concerns about the stagnation of the IPO market paradoxically at a time when the Nasdaq Biotechnology Index had climbed 30% since January alone (IPO flurry raises valuation gap questions, May 29, 2013).

The first half also included two new listings on European exchanges – those of the French oncology player Erytech and the Swedish therapeutic cancer vaccine start-up Immunicum. Two other non-US companies, GW Pharmaceuticals and Kamada, completed additional listings on Nasdaq, suggesting that while the US was not the only source of scientific talent it was perhaps where you had to go to see it recognised financially.

Still, things might be looking up for Europe too. Last week's news that Cardio3 BioSciences, a Belgian company developing regenerative, protective and reconstructive therapies for treating cardiac diseases, had raised €23m in a flotation on NYSE Euronext Brussels and NYSE Euronext Paris could start to allay fears about US biotech sentiment not crossing the Atlantic.

Biotech IPOs on western stock exchanges in H1 2013
Company Date Amount raised Offering price Range Discount/premium Exchange Share price from float to June 30
Stemline Therapeutics January 29, 2013 $33m $10 $10-12  (9%) Nasdaq 138%
KaloBios Pharmaceuticals January 31, 2013 $70m $8 $12-14  (38%) Nasdaq  (29%)
Tetraphase Pharmaceuticals March 20, 2013 $75m $7 $10-12  (36%) Nasdaq 0%
Enanta Pharmaceuticals March 21, 2013 $56m $14 $14-16  (7%) Nasdaq 27%
Omthera Pharmaceuticals* April 11, 2013 $64m $8 $12-14  (38%) Nasdaq 66%
Chimerix April 11, 2013 $102m $14 $13-15 0% Nasdaq 73%
Immunicum April 22, 2013 SEK21.4m ($3.2m) SEK8 ($1.20) Nasdaq OMX Stockholm 16%
Erytech April 30, 2013 €17.7m ($23.3m) €11.6 ($15.20) €10.50-12.70 0% NYSE Euronext Paris  (8%)
GW Pharmaceuticals May 01, 2013 $31.2m $8.90 $10.79  (18%) Nasdaq  (1%)
Insys Therapeutics May 02, 2013 $36.8m $8 $16-18  (53%) Nasdaq 73%
Receptos May 09, 2013 $73m $14 $14-16  (7%) Nasdaq 42%
Ambit Biosciences May 16, 2013 $65m $8 $13-15  (43%) Nasdaq  (13%)
Alcobra Ltd May 22, 2013 $25m $8 $10-12  (27%) Nasdaq  (14%)
Portola Pharmaceuticals May 22, 2013 $122m $14.50 $13-16 0% Nasdaq 69%
Epizyme May 31, 2013 $79.8m $15 $13-15 7% Nasdaq 88%
Kamada Ltd May 31, 2013 $51.6m $9.25 $10.75  (14%) Nasdaq 20%
Bluebird Bio June 18, 2013 $101m $17 $14-16 13% Nasdaq 47%
PTC Therapeutics June 20, 2013 $125m $15 $13-16 3% Nasdaq 0%
Esperion Therapeutics June 26, 2013 $70m $14 $13-15 0% Nasdaq 1%
Prosensa June 27, 2013 $78m $13 $11-13 8% Nasdaq 48%
Average $67m  (14%) 32%
*bought by AstraZeneca on 28 May for $12.70 per share plus up to $4.70 in contingent value rights.

It is interesting that this year’s newcomers are sitting on share price gains of 32% on average since floating – almost precisely mirroring the performance of the Nasdaq biotech index. This suggests that, despite some significant deviations, IPOs have tended to be priced at a level that balances the need for cash against the expectations of a reasonable investor return.

Flops outnumbered

Only two companies stand out as real flops; neither KaloBios Therapeutics nor Israel’s Alcobra Pharma have significant catalysts on the horizon, and have been punished in the aftermarket after listing at significant discounts to expectations.

Insys Therapeutics is a curious case of a company floating at the low end of a much-reduced price range, but then going on to record impressive gains of over 70% so far, to develop its lead synthetic cannabinoid for chemotherapy-induced emesis. It bears a passing similarity to the UK’s GW Pharmaceuticals, a developer of cannabis extracts, whose listing of ADRs on Nasdaq has failed to lift it to new highs.

But the underperformance of some groups is dwarfed by the resounding successes of the likes of Stemline Therapeutics, Chimerix, Portola Pharmaceuticals, Epizyme, Bluebird and Prosensa.

One recipe for success is to be active in hot therapy areas – oncology and an orphan indication in Stemline’s case and antivirals in Chimerix’s – though in the current climate even gene therapy is no longer out of favour, as Bluebird can attest. For these companies’ assets additionally to be unpartnered sets up the expectation that they might attract a licensing deal with significant cash, or even an acquisition.

Takeover is also the endgame for Portola and Prosensa, except these biotechs already have ready-made acquirers in their current partners. The only issue is price, and, as AstraZeneca’s acquisition of Omthera Pharmaceuticals shows, sometimes no particular takeover trigger is necessary.

Nevertheless, the summer shutdown is approaching, and any private companies wanting to piggyback on the successes need to move fast. With the fear that interest rates will rise from their historic lows sooner rather than later, come September the IPO window might have slammed shut again.

To contact the writer of this story email Jacob Plieth in London at [email protected] or follow @JacobEPVantage on Twitter

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