07 June 2013

Biotech IPO: a brave new world?

Investors have had their fingers burnt in the past on biotechnology initial public offerings (IPOs) by companies which ended up dead in the water and, subsequently, these potential backers have fled the industry. However, the sector’s IPO market appears to be undergoing some kind of transformation as the Nasdaq Biotechnology Index rose by 32 per cent last year (30th December 2011: 1,084.72; 31st December 2012: 1,430.81), surpassing the broader Nasdaq Composite which increased by 16 per cent. So far this year the Index has shot up a further 30 per cent (4th June 2013: 1,817.91), compared to S&P 500’s 14 per cent increase, prompted by promising new medicines and diagnostics with good growth opportunities. While it would be jumping the gun to suggest listings by clinical-stage developers are taking centre stage, the sector is certainly attracting attention in the press – if in doubt, carry out a word search and see how many articles pop up.

The latest biotech player heading to the stock market is bluebird bio, a venture capital-backed company which is very similar to recently-listed Epizyme. The Massachusetts-based developer of potentially transformative therapies for severe genetic and orphan diseases is hoping to line its coffers with as much as USD 92 million to fund research activities. bluebird is targeting a float on Nasdaq, offering more than a fifth of its equity to would-be investors in a share sale set at between USD 14 and USD 16 apiece. Backed by the likes of Third Rock Ventures and TVM Capital, the group entered into an early-stage oncology programme in partnership with Celgene in March.

Bluebird will be following in the footsteps of Epizyme, which blazed a trail at the end of last month after raising USD 77 million from an IPO on Nasdaq. This fellow Massachusetts-based gene therapy platform developer is also focused on creating a product pipeline of personalised therapeutics for patients with genetically defined dispositions to certain indications. Eerily, it also has an exclusive product licencing agreement with Celgene outside of the US. Since going public on 31st May, Epizyme’s stocks have almost doubled from the offer price of USD 15 apiece when the bell rang on 4th June.

Unlike most sectors, biotechs use IPOs as a way to raise financing to fund the next stage of development for their product candidates, and not as exit opportunities for early investors. Reuters suggested that this could go some way to explaining why more biotechs seem to be going public – turning to the capital market at a time when private investment is thin on the ground. According to Zephyr, the M&A database published by Bureau van Dijk, venture capital and development capital investment in the biotech, pharmaceutical and life sciences has decreased steadily since 2009. Eased regulatory requirements and the ability to file confidentially are some of the latest attractions drawing emerging developers towards going public. However, the make or break biotech sector is not for the faint of heart as overnight players can either soar in the wake of successful trials and fast-track approvals from the US Food and Drug Administration, or crash and burn on failed studies.

© Zephyr