Tags: biotech | IPO | investment | drugs

FT: Biotech IPO Gold Rush Gains Momentum

Friday, 02 Aug 2013 10:18 AM

By John Morgan

Initial public offerings (IPOs) from U.S. biotechnology stocks are riding a crest of investor exuberance, even though they represent one of Wall Street's riskiest investments, the Financial Times reported.

Richard Truesdell, co-head of Davis Polk & Wardwell's global capital market practice, said biotech IPOs tend to be "all-or-nothing bets," and that companies are rushing to market to take advantage of high investor risk appetites.

"We are clearly seeing an increasing 'risk-on' mentality among investors," he told the Times.

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So far in 2013, 22 companies have raised $1.7 billion in biotech IPOs in the United States, according to Dealogic data cited by the Times. That pace exceeds the total amount raised in biotech IPOs in the United States in 2011 and 2012 combined.

Historical data show that a biotech firm with drugs in Phase I clinical trials, as some of the IPOs have, has only a 10 percent chance of successfully bringing a drug to market, the newspaper reported.

"The danger of all of these companies coming public is that a lot of them are going to fail because drug development isn't that easy. It's all great, until it's not," said Rachel McMinn, an analyst at Bank of America Merrill Lynch.

The Nasdaq Biotechnology Index has climbed 43 percent in 2013, far ahead of the 18.6 percent rise in the Standard & Poor's 500.

One reason some biotech IPOs are so popular now, after being out of favor in recent years, is that some of them are finding sponsorship by larger pharmaceutical firms, CNBC reported.

For instance, Agios went public recently with a $7 million IPO investment by Celgene, and Onconova got an IPO investment from Baxter Healthcare, according to CNBC.

The Wall Street Journal reported other factors accounting for biotech IPO popularity are an increase in new drug approvals in the sector, strong results from some biotech firms that are already public, and favorable regulatory legal changes.

In 2012, the Food and Drug Administration approved 39 new drugs, according to the agency, a total not reached since 1997. So far in 2013, the FDA has approved 13 new drugs, The Journal said.

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