Newcomers to the market in 2012 may include Argos, Cempra, Merrimack, and Rib-X. [© Akhilesh Sharma - Fotolia.com]
The biopharma IPO market is showing some signs of life heading into 2012, but conditions in and outside the markets continue to worry several observers. Most remain pessimistic about the prospects for a rebound by first-time public biotech and pharmaceutical companies.
“My expectation is that the IPO market will not dramatically improve next year, and the reality is, the IPO market has been abysmal for the last 10 years,” Mike Carusi, general partner with Advanced Technology Ventures, told GEN. “This isn’t a one-year issue. We have not seen a robust IPO market across the board since 1999–2000. That’s what has made venture financing so very challenging. We live and die by a healthy IPO market. And without that, it just limits the number of opportunities we have to exit our companies.”
Those views are gloomier than the one being offered by G. Steven Burrill who projects a total 25 biotechs worldwide will complete IPOs in 2012, compared with 16 counted by Burrill for 2011. “Biotech companies will continue to go public in choppy markets where they will grab opportunities as they arise.”
Carusi noted that there are several exogenous factors that impact the IPO markets. “Next year may be a little better but it is unlikely to be much better.” He pointed to Europe’s ongoing economic volatility as well as the upcoming election year and the ongoing political stalemate on how to reduce the national debt in the U.S. “As a result, people are very reluctant to invest in companies that are early stage and have a high degree of risk associated with them because they don’t have revenues yet.”
Echoing Carusi is Mark Heesen, president of the National Venture Capital Association (NVCA), who told GEN: “I think it’s hard to imagine that you’re suddenly going to start to see a wide opening of the IPO market and one that will sustain companies that do go public at the prices that companies want them to be at.”
Heesen and Carusi spoke days after NVCA and DowJones VentureSource released results from a survey conducted late last year of more than 500 venture capitalists and CEOs of venture-backed companies in the U.S. Eighteen percent predicted an increase in the volume of life science IPOs, while 7% of those respondents expected an increase in the amount of money invested in those biopharma IPOs. Biopharma IPO market optimists might also take comfort from the finding that 19% of VCs expect the same amount of money to be invested in the industry’s newly public companies, while 15% were not sure.
But it’s hard to spin the overall pessimism of VCs, 58% of which expect reduced investment in biopharma IPOs in 2012. Indeed a 57% majority do not expect any improvement in the performance of venture-backed IPOs, whether in biopharma or any other sector. And while almost half of CEOs predict increases in 2012, the percentage slipped from 58% who made a similar forecast a year ago.
Firms that Would Like to Go Public
A spot-check of the biopharma IPO pipeline by GEN found the following companies planning to sell their first stock in the new year after filing registration statements with the US Securities and Exchange Commission during 2011, but none have yet set initial share prices or amounts of shares to be traded:
- Argos Therapeutics filed its registration statement on July 29, 2011, disclosing plans to raise up to $86 million. The firm’s lead candidates are designed to treat metastatic renal cell carcinoma and HIV. They are based on the company’s Arcelis™ platform, which uses patients’ dendritic cells to activate a disease-specific immune response.
- Cempra Pharmaceuticals filed its S-1 statement on October 1, 2011, seeking to raise $86.25 million. The developer of antibiotics has two Phase III products: pneumonia treatment CEM-101 is in three separate studies and CEM-102 for MRSA and other skin infections is being evaluated in one study.
- Merrimack Pharmaceuticals disclosed plans to raise $172.5 million in its S-1 statement filed July 8, 2011. Lead candidate MM-398, a nanotherapeutic encapsulation of chemotherapy irinotecan, achieved primary efficacy endpoints in Phase II trials in pancreatic and gastric cancer. The firm also started dosing its first patient in a study evaluating MM-121 in several advanced cancers during December 2011.
- Rib-X Pharmaceuticals disclosed plans to raise $80 million in its November 25, 2011, S-1 filing. Rib-X plans on launching a Phase III study with its lead candidate, delafloxacin, in the second half of this year in acute bacterial skin and skin structure infections.
- Verastem envisions raising $50 million, according to its S-1 filed November 4, 2011. Its lead candidate, small molecule VS-507, is at the preclinical stage.
- Supernus Pharmaceuticals, on December 29, filed an updated S-1 to raise $100 million through an IPO; its original prospectus filed in December 2010 called for the spinoff of Shire Laboratories. The new filing showed the company’s cash, cash equivalents, and marketable securities shriveled by about two-thirds during the past year from $45.8 million as of December 23, 2010, to $16.5 million. The firm’s lead candidate, SPN-538 for epilepsy, received FDA approval in November 2011. The agency is separately evaluating SPN-804 also for the treatment of epilepsy.
Health of Public Markets
The companies and especially their prospective investors will have a better feel for the health of the market as each company works out key details of their IPOs. Of the 29 biopharma IPOs launched over the past two years, 19 were forced to lower their share prices from initial estimates. Of the remaining 10 IPOs, five priced at the low end of their ranges, two at the middle of their ranges, two at the high end, and only one surpassed its initial price range altogether.
Another way to measure the health of the biopharma IPO market for this year will be to see how many companies backtrack on plans to go public. Since 2010, six biopharmas have withdrawn their IPOs. Ambit Biosciences, Agendia, Clarus, and Quark Pharmaceuticals all found the market more difficult than anticipated, while Rules-Based Medicine took Myriad Genetics’ $80 million acquisition offer after its own withdrawal, and Advanced BioHealing found a $750 million buyout by Shire too tempting to resist.
“What ends up happening is that the very best companies that don’t have to go public—i.e., they have other ways of raising capital—they don’t go public,” Carusi pointed out. “Those companies that do go public are those that need the capital and may have a syndicate of investors who are tired or not able to continue to fund the company or who have other factors for why they choose the lesser outcome.”
Absent a dramatic change in conditions that have dampened the overall public markets and a turnaround in investor confidence, the biopharma IPO market this year will likely continue a slow thaw. But it’s not likely to be enough to pull it out of the deep freeze in which it has been since the onset of the most recent recession in 2007.