Biotech IPOs are scrambling to compete for investors who are more smitten with other technologies, especially social media, William T. Whelan, a partner in the Boston office of law firm Mintz Levin Cohn Ferris Glovsky and Popeo, and Kyle Guse, a partner in the Silicon Valley office of law firm McDermott Will & Emery, both told GEN.
LinkedIn more than doubled its IPO share price of $45 on May 19, its first day of trading, when it netted $351 million. As of June 13, company shares closed at $75.22; they have risen as high as $122.90. Earlier that day, CNBC reported that Facebook was planning its own initial stock sale of more than $100 billion as early as October or November. The company declined comment, though, last month its COO called an IPO inevitable.
“There’s so much hype and interest in that area that investors are channeling their money in those directions,” Guse said. “I think it’s more a sign of other opportunities out there for the limited number of dollars, more so than the quality of the biotechnology IPOs that are coming out.
“Quality-wise, they’re much better than they were, say, 10 years ago. We’re seeing companies with revenues, and multiple streams of revenues at that, and lengthy operating histories.” It helps, Guse added, that the average age of a company going through a biotech IPO is more than 10 years.
IPO market tracker IPOX Schuster looked at 22 U.S. biotechs that had IPOs from the start of 2010. The average equally weighted IPO enjoyed a 26.56% gain over its initial price during the past year, while the median equally weighted IPO saw a 15.61% increase over last year. Twelve companies have gained in price since their IPOs, while another nine have fallen since going public, and one was unchanged.
When adjusted for the broad measure of U.S. IPO performance, Schuster found that the performance is mixed: While the average biotech IPO has outperformed FPX by 11.92%, the median has underperformed FPX by -2.86%.
Josef Schuster, Ph.D., founder of IPOX Schuster, told GEN that the relatively solid performance versus FPX resulted from big gains for three companies:
- Pacira Pharmaceuticals, developer of DepoFoam® drug delivery technology, has seen its stock price climb to $12.70 per share from the first-day price of $7 during its $42 million IPO yet below its initial filing price of $15 per share.
- Aveo Pharma, a developer of targeted cancer therapeutics, closed June 13 at $18.92 per share, more than double its original price of $9 at its $81 million IPO on March 11. Aveo sold its shares at below its original IPO price range ($13–$15 per share).
- Ventrus Biosciences’ offering price of $6 in its $17.4 million IPO was the lower end of a per-share price range stretching to $7. Ventrus’ price had since doubled to $14.61 per share as of June 13. The company concentrates on gastrointestinal disorders, specifically hemorrhoids, anal fissures, and fecal incontinence.
“It is also typical for biotech IPOs to see their price range slashed up to 30% before trading starts, which has to do with the underlying risks (also liquidity risk) for the respective deals. This has obviously helped the performance,” Dr. Schuster said.