After recording the strongest January in years, the equity capital markets turned in a volatile performance for Q1 2011, with the Dow and S&P ending the quarter up 6.4% and 5.4%, respectively. Investors managed to shake off worries over antigovernment protests in Egypt and are digesting the turmoil and uncertainty stemming from the unrest in the Middle East and the natural disaster that struck Japan.
After a somewhat quiet start to the year for biotech, momentum for the sector began to accelerate as sanofi-aventis and Genzyme finally reached an agreement in February, approximately seven months after Sanofi made its initial bid of $69 per Genzyme share. The final terms have Genzyme shareholders receiving $74 per share in cash and one contingent value right per share, which entitles them to additional cash payments based on milestones related to specific Genzyme programs.
The Nasdaq biotech index ended Q1 up 7.3%, and we continued to see healthy financing activity for the sector. Public biotech companies raised over $5 billion in Q1, more than twice what was raised by the sector during the same period last year. Amarin kicked off the year on a strong note, raising $105 million through a public equity follow-on offering, after reporting that it met pivotal Phase III endpoints, with highly statistically significant reduction in triglycerides in its Marine study, in late November of last year.
Several other biotechs managed to complete sizable public equity follow-on offerings of $100 million or more, including Nektar ($225 million), Pharmasset ($176 million), Seattle Genetics ($178 million), and Exelixis ($190 million). These five financings, including Amarin’s $105 million deal, equal the number of public equity follow-on financings of $100 million or more completed by biotech companies in all of 2010.
The biotech IPO class of 2010 continued to perform, trading up 11.4% during Q1. Standout performers from the class included Aveo Pharmaceuticals, which was up 48.0% at the end of Q1 from its IPO price. Aveo’s tivozanib is currently in Phase III development to treat patients with advanced renal cell carcinoma. This strong aftermarket performance bodes well for private biotechs currently in the IPO queue or contemplating tapping the public markets this year.
Although not robust, new issue activity continued in Q1, as four biotech companies managed to successfully price their offerings and make their public equity market debut. However, biotechs seeking to go public today still face a significant liquidity discount. The private biotechs that are most likely to attract sufficient public institutional investor support include those companies with late-stage assets, de-risked development pipelines, and VCs that have the dry powder and appetite to potentially participate in the IPO.
Thus far, the performance of biotech IPOs priced in Q1 has been mixed, but investors continue to show interest in high-quality opportunities, as deals are getting done. Several promising private biotechs are waiting in the wings, looking for signs of stability and enthusiasm from the capital markets..