Due to market volatility, more firms may go the M&A route rather than flocking to public markets. [© Lane Erickson - Fotolia.com]
The market for biopharma IPOs this year has hardly restored to its mid-2000s heyday. Investors continue to shun trading in many life science companies for higher-flying performers like social media.
Since 2010 and as of December 27 of this year, 29 biotech firms (including two biofuel companies) have gone public: 13 this year and 16 in 2010. Nineteen of the 29 biopharma IPOs launched since 2010 sold their first stock at prices below their planned share prices when their companies filed to go public. Of the remaining 10 IPOS, one traded above its initial price range, five traded at the low end of the range, two traded at the high end of the range, and two trade at the middle of the range.
Only nine are currently traded above or at least at their IPO prices, according to a spot-check by GEN. That means some two-thirds of those recently public companies now trade at a loss to investors. Of the 20 biopharma IPOs now trading below their IPO price, nine lost more than half of their share price, while eight lost between 26%–50%, and another three between 1%–25% of their share price.
Those losses can be steep. The weakest performer among 2010–2011 IPOs is Tengion. Its $0.35 share price as of December 27 was 93% below its $5 IPO pricing in April 2010. The stock free-fall followed research setbacks and its February disclosure that it risked running out of money. Tengion hopes its recent naming of a new president and CEO, John Miclot, and consolidation of operations in Winston-Salem, NC, will put the company back on the right track.
Alimera Sciences lost 89% of its IPO price, plunging from $11 when it went public in April 2010 to around $1.29. Most of that drop came after the FDA denied approval of Iluvien for diabetic macular edema.
Another a big fall came from NuPathe, which fell from $10 in August 2010 to about $1.80. It is refiling its first NDA, which covers Zelrix migraine patch, after FDA issued a complete response letter. Sequencing company Pacific Biosciences also saw a big drop. It has gone from $16 in October 2010 to $2.61 a share and announced plans in September to lay off 28% of its workforce, or 130 employees. Analysts have questioned the company’s spending rate and prospects for profitability.
The strongest performer among companies going public since 2010 is cancer drug developer Aveo Pharmaceuticals. It closed trading around $16.79 as of December 27, up about 84% from its March 2010 IPO price of $9. Its lead candidate, tivozanib, is now in a Phase III advanced renal cell carcinoma program.
Two companies that began trading last month have also seen success thus far: Clovis Oncology and NewLink Genetics. Clovis saw its per-share stock price zoom from the low end of its estimated IPO price range of $13 per share to $14.82 before settling at $13.96 as of December 27. The company raised $130 million in its IPO on November 15.
Four days earlier NewLink Genetics raised $43 million by selling 6.2 million shares at $7 per share; it had sought a $10–$12 range. The developer of immunotherapies for oncology has seen its price fluctuate between $6.25 and $7.81 a share.
While Aveo’s success, like that of Clovis and NewLink, might steer some investors to cancer drug companies, the specialty of a company is less a predictor of success for public biopharmas than their ability to advance a product through the clinic, Mike Carusi, general partner with Advanced Technology Ventures, told GEN.
“By and large, they are going to be product companies, and if they have a product in the pipeline, what stage is it? If it’s in Phase III or in some cases marketed, then they’ll be able to garner a much higher valuation,” Carusi noted.
He cited another strong performer among recently public companies, Ironwood Pharmaceuticals. The company’s shares were at roughly $12.03 as of December 27, about 7.4% above the IPO price of $11.20 in February 2010. Carusi said Ironwood has fared better than most of the 2010 IPOs because it was a more established company with a promising product in later stages of reviews: “They could go public in any market.”
Ironwood expects an FDA decision on its oral peptide-based medication, linaclotide, for irritable bowel syndrome with constipation (IBS-C) and chronic constipation by June 2012. An MAA was submitted by its European partner, Almirall, this September. Decision Resources predicted that the peptide will achieve blockbuster sales by 2018, and emerge as a market leader for IBS by 2020.
“What it takes in biotech is something that is more mature, and there just aren’t many companies like that,” Carusi said.
Other examples of successful biopharmas that went the IPO route: Aegerion Pharmaceuticals, Trius Therapeutics, and Sagent Pharmaceuticals. Aegerion, developer of treatments for rare genetic lipid disorders, was trading around $16.52 on December 27, up about 73% from its initial offering share price of $9.50 in October 2010. Aegerion has an ongoing Phase III trial with its candidate for homozygous familial hypercholesterolemia, lomitapide.
Trius Therapeutics, which makes antibiotics, was 35% higher as of this Tuesday at about $7.21 compared to its August 2010 IPO price of $5. On December 19 the company reported positive Phase III results for its lead molecule, tedizolid phosphate (TR-701), as a treatment for acute bacterial skin and skin structure infections.
Shares of Sagent, an injectable-drug developer, were trading at approximately $21.57 on December 27, up about 38% from the $16 IPO price when it launched in April 2011. Sagent said last month that it was focused on launching 40 generic drugs, represented by 75 ANDAs either recently approved or pending FDA approval.
Finding Different Exits
Carusi said that earlier this year his firm weighed taking Japanese firm Plexxikon public because it had the advanced data investors typically seek—a Phase III study of its lead candidate, PLX4032, an oral drug targeting the oncogenic BRAF mutation. “That was a company that I believe could have gone public, and it would have priced quite well, certainly been valued at north of $500 million,” Carusi explained.
That plan changed after Plexxikon attracted a higher value through a buyout. On March 1, 2011, Daiichi Sakyo acquired Plexxikon for $805 million up front plus up to $130 million in milestone payments tied to the approval of PLX4032. On August 17, FDA sanctioned the compound as Zelboraf for the treatment of BRAFV600E mutation-positive inoperable or metastatic melanoma.
There were at least three other companies that withdrew plans for going public during 2011: Ambit Biosciences, Advanced BioHealing, and Rules-Based Medicine. Ambit, which is focused on cancer and has a late-stage candidate, secured $30 million in Series D-2 equity financing a day after retreating from plans to raise $86 million through a first time stock sale.
Advanced BioHealing, maker of skin substitute dermagraft, reneged on its IPO plan when Shire said it would buy the company for $750 million. Rules-Based Medicine (RBM) pulled its $90 million IPO from the market in November 2010, and a few months later, Myriad Genetics bought RBM for about $80 million.
As long as the cream of the biopharma crop can fetch more money through mergers and acquisitions, they are unlikely to flock to public markets any time soon. “By and large the IPO market, at least in my mind, is effectively shut,” Carusi remarked.
“And it’s shut because of the volatility in the market,” he continued. “Because of the volatility, the public market buyers are reluctant to jump into companies that are pre-revenue, that are not well-established, and as a result if they are going to jump in, they demand a valuation discount.”
In 2010, about 68%, or 11, of the 16 biopharma firms that braved the IPO route offered at below initial price ranges. This year, that percentage dropped to 61%, with 8 of the 13 companies that went public offering below their initial estimates.
So while discounting remains a fact of life for most biopharmas that go public, there may be a slight trend toward more IPOs falling within companies’ initial ranges. How the stocks fare in the years to follow depend on getting products swiftly and efficiently through development and on the market.
Do you think the IPO window will swing open wider in 2012?