If as recently as three months ago biotech flotations looked like an area in terminal decline, the second quarter witnessed a remarkable turnaround, with the total raised in new issues exceeding $1bn and amounting to the strongest IPO quarter since nearly two years ago.
The resurgence has been driven by the US, which in Biohaven’s $168m float saw the biggest IPO of 2017 so far. It will not go unnoticed that the third quarter of 2015, the last time the $1bn mark was breached, came just after the peak of biotech’s bull run, and that the Nasdaq biotech index last month hit its highest point since the end of 2015 (see data below).
The second-quarter numbers provide a neat contrast with the climate for acquisitions, which the latest data suggest appears to have stalled (Second-quarter deals show a sector set on pause, July 3, 2017).
The valuation question
Since big pharma is not thought to have stopped looking for takeover targets, this trend suggests a divergence of opinions about biotech valuations.
As long as big pharma is sceptical of the surging market caps of potential targets M&A deal-making will remain subdued. For biotech this is not a problem – as long as small companies can, as the IPO numbers suggest, attract significant cash from public and VC investors their argument for holding out against what they perceive to be undervalued bids will remain strong.
Biohaven is a case in point: the group, focused on the trendy area of genetic diseases, had raised over $100m since inception four years ago, and capped that with a premium-priced $168m float, which amounted to $194m gross if the overallotment option is included. Not only that, but since floating its stock has put on 47%.
|Q2 biotech IPOs on Western exchanges (Nasdaq unless stated)|
|Company||Date||Amount raised ($m)||Offering price ($)||Premium/(discount)||First-day close ($)||Q2 chg since float|
|Biohaven Pharmaceutical (NYSE)||04 May||168||17.00||13%||17.50||47%|
|G1 Therapeutics||17 May||105||15.00||(6%)||15.00||16%|
|Dova Pharmaceuticals||29 Jun||75||17.00||6%||19.81||31%|
|Ovid Therapeutics||05 May||75||15.00||(6%)||12.25||(30%)|
|Mersana Therapeutics||28 Jun||75||15.00||0%||14.00||(7%)|
|Zymeworks (NYSE)||28 Apr||64||13.00||(10%)||13.00||(36%)|
|Urogen Pharma||04 May||58||13.00||8%||13.98||39%|
|Aileron Therapetuics||29 Jun||56||15.00||(6%)||10.80||(26%)|
|Bergenbio (OSE)||07 Apr||51||2.90||–||25.00||(13%)|
|Isofol Medical (Nasdaq First North)||04 Apr||48||3.22||–||27.00||(20%)|
|Valbiotis (Euronext)||07 Jun||40||11.80||0%||10.00||(4%)|
|Avenue Therapeutics||27 Jun||38||6.00||0%||8.25||33%|
|Skinbiotherapeutics (LSE)||05 Apr||6||11.23||–||15.00||23%|
|Annexin Pharmaceuticals (Nasdaq First North)||19 Apr||6||17.67||–||8.40||(50%)|
The company was one of 16 biotechs that floated in the second quarter, only five of which did not involve US exchanges. In the previous three months Nasdaq was looking like a very unfriendly place, with half the first-quarter IPOs being done on European exchanges.
Arguably, two of the second-quarter entrants were not fully fledged IPOs; Skinbiotherapeutics and Avenue Therapeutics are both spin-outs of bigger biotechs, Optibiotix Health and Fortress Bio respectively. Optibiotix retains a 42% Skinbiotherapeutics stake, while Fortress has majority control of Avenue by virtue of class A preferred stock.
It will come as no surprise that non-US floats ended up at the bottom of the second-quarter table in terms of IPO size. Perhaps more worryingly, it was also non-US biotechs that accounted for the lion’s share of post-float share price declines – four of seven – and collectively this cohort is off 13%.
Though pre-IPO price haircuts are still commonplace, the fact that the second quarter suggested a relative equilibration of entrants might please biotechs in the flotation queue: two raised over $100m (the oncology player G1 Therapeutics in addition to Biohaven), yet the average amount raised, at $63m, outstripped the $51m average of 2016.
Renaissance Capital, a provider of IPO and pre-IPO analysis, last week found that across all sectors the second quarter of 2017 provided the most active US IPO market for two years. And it was tech and healthcare that drove this mini bull market, at the expense of natural resources companies.
Those hoping for continued resilience from biotech as the markets enter the summer lull will hope that this is just the beginning.