IPO bumps slow, but no need to panic yet

In spite of the recent volatility in the public markets, venture investors in biopharma companies are still reaping the rewards when these groups float. However, the rate of returns has dipped since this analysis was last carried out in 2015, and if the IPO scene continues to stagnate it could fall further still.

Nevertheless, there is still a profit to be made, and the latest numbers could reassure any jittery VCs; on average, investors more than doubled their money in the 2013-16 period, and those willing to take a risk on early-stage assets did particularly well, with the biggest bump-ups coming in phase II (see tables below).

Investors will be keeping a close eye on things, though. The average IPO bump peaked at 221% in 2015 before falling to 141% in 2016, a particularly lacklustre year for IPOs by recent standards (Investors in new issues embrace 2016’s new reality, January 24, 2017). 

There are signs that things could be picking up in 2017, with Jounce Therapeutics’ $102m float and several other companies waiting to go public. A more buoyant IPO sector this year could help VC returns bounce back.

This analysis of SEC data compiled by EvaluatePharma compares the average share price of VC rounds with the IPO offering price to determine the increase in valuation resulting from a public listing.

It excludes the two top performers, Viking Therapeutics and Axovant Sciences, which had huge bumps of 39,900% and 21,329% respectively. Even without these outliers the numbers are healthy – and unsurprisingly, investors in the groups that managed to raise the most in the public markets were the most handsomely rewarded.

IPO performance by value/phase, 2013-16
Average amount raised by IPO ($m) Average % bump at IPO Average SP since IPO No. of companies in analysis
All IPOs 82 169% 33% 157
IPOs that raised $100m+ 168 364% 174% 34
IPOs that raised $80m+ 137 284% 110% 56
IPOs that raised $40m+ 92 182% 46% 134
Phase III companies 87 156% 259% 23
Phase II companies 81 164% -11% 69
Phase III + II companies 83 162% 57% 91
Pre-clinical companies 72 134% 1% 13
Source: EvaluatePharma, SEC filings.

Interestingly, there does not seem to be much of a difference between phase II and phase III companies, in terms of bump-up. More surprising was the most successful sector: sensory specialists beat oncology companies to the number-one spot, with the caveat that there were far fewer of the former.

While cancer groups saw a substantial bump, this was not matched by their performance once on the market, suggesting that early enthusiasm about these assets has not always been well placed.

IPO performance by sector, 2013-16
Average amount raised by IPO ($m) Avg % bump at IPO Average SP since IPO No. of companies in analysis
Oncology companies 86 186% -18% 44
CNS companies 56 113% 17% 21
Systemic anti-infective companies 60 49% -43% 13
Sensory 92 208% 544% 11
Source: EvaluatePharma, SEC filings.

The three best performers of the past four years all came in the 2015 boom, with Viking, Axovant and Nantkwest all showing impressive bump-ups. The last two were largely backed by individual benefactors rather than VC syndicates – but all three have since failed to live up to expectations.

Axovant, which had 2015’s biggest IPO, has suffered from broader setbacks in the Alzheimer’s space. Forecasts for its serotonin antagonist intepirdine seem optimistic, even if the project does ace its ongoing phase III trial. Anything less could spur a further exodus.

Biggest share price value increase at IPO
IPO date Company Amount Raised by IPO ($m) Most advanced project at IPO Therapy area focus % bump at IPO SP change from  IPO to YE16
Apr 2015 Viking Therapeutics 24 Phase II Endo 39,900% -85%
Jun 2015 Axovant Sciences 315 - CNS 21,329% -17%
Jul 2015 Nantkwest 208 Phase I Onco & immuno 2,152% -77%

At least early investors in these companies enjoyed a payday. VCs getting in on the ground with Sophiris Bio, Globeimmune and Scynexis were not so lucky – and things got even worse once they were publicly trading.

Biggest share price value decrease at IPO
IPO date Company Amount Raised by IPO ($m) Most advanced project at IPO Therapy area focus % bump at IPO SP change from  IPO to YE16
Aug 2013 Sophiris Bio 65 Phase II GU -75% -44%
Jul 2014 Globeimmune 15 Phase II Onco & immuno -70% -97%
May 2014 Scynexis 62 Phase II Systemic anti-infectives -68% -68%

The second quarter of 2015, the last time this analysis was carried out, now looks like the golden period for VCs, who enjoyed an IPO bump of 271% (Biotech bull market boosts IPO bumps, July 9, 2015). 

The pullback in valuations across the market last year is apparent here. But it is clear that, for those companies that manage to float, venture firms can still make decent returns. However, an IPO is not an exit, and VCs are frequently required to continue holding substantial stakes. Whether they can make a decent return in the end will depend on longer-term execution.

To contact the writers of this story email Madeleine Armstrong or Edwin Elmhirst in London atnews@epvantage.com or follow @ByMadeleineA or @EPVantage on Twitter

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