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Biotech IPOs Slow to Trickle as Stock Rout Rattles Investors

Biotech IPOs Slow to Trickle as Stock Rout Rattles Investors
(Dollar Photo Club)

Thursday, 08 October 2015 01:15 PM

The biotechnology sector’s two-and-a-half-year deluge of public market debuts, with dozens of companies raising billions of dollars in funding, is now down to a trickle.

After CytomX Therapeutics Inc. priced its initial public offering late Wednesday, not a single biomedical, drug or therapeutics company is expected to follow suit in the next 30 days. That would make this the slowest monthlong period for IPOs for those industries since February 2013, according to Bloomberg data.  

The lull follows two of the highest-flying years in at least the past decade and a half: in 2013, a record $7.1 billion was raised from 50 biopharmaceutical IPOs that began trading, while the following year’s record 81 offerings brought in a total of about $6 billion, according to data compiled by Bloomberg.

Yet a confluence of bad news for the sector has thrown cold water on the market during the tail end of this year, in which $4.6 billion has been raised thus far from 48 IPOs.

Democratic presidential candidate Hillary Clinton called for reforms in the drug industry on Sept. 21, accusing biotech company Turing Pharmaceuticals AG of "price-gouging" for acquiring a drug and raising its price more than 5,000 percent. That has sent the Nasdaq Biotechnology Index down 14 percent through Wednesday. Turing has said it will lower the price, though it hasn’t yet announced details.

Recent high-profile stumbles in trials of biotech drugs have also underscored the riskiness of the drug business. For instance, Tetraphase Pharmaceutical Inc.’s late-stage trial failure of an antibiotic sent its shares down 79 percent in a single day last month, wiping out $1.3 billion in market value.

“We’ve had an absolutely fantastic run for the last two years, and we all know it’ll end someday," said Jay Lichter, a partner at La Jolla, California-based Avalon Ventures. “That’s a risk right now."

The window for biotech IPOs hasn’t completely closed under these conditions, though investors are favoring more proven products, according to people familiar with the offering process. Companies whose drugs and therapies are unproven have had less successful public offerings because investors see the stocks as riskier, said the people, who asked not to be identified because the information is private.

Of the six biotech IPOs in the past month, five either slashed the share price marketed to investors before trading or priced below the targeted range, according to Bloomberg data, indicating lower-than-expected demand for shares.

Nabriva Therapeutics AG had marketed to investors an IPO of as much as $102 million, offering 6 million shares at a range of $15 to $17 a piece, according to the company’s prospectus. The antibiotics maker ended up cutting the targeted share price to $10.50 while increasing the stake sold to 9 million shares, an updated filing shows, which would mean proceeds of $94.5 million,excluding the shares underwriters had the option to sell.

Meanwhile, Edge Therapeutics Inc. had offered 5.67 million shares at a range of $14 to $16 apiece, according to its prospectus. Shares of the developer of hemorrhage drugs ended up pricing at $11 a share, a 27 percent discount to the midpoint of the initial range. The shares climbed to $14.53 at 12:02 p.m. in New York.

CytomX raised $80 million Wednesday in its initial public offering, selling 6.7 million shares for $12 each, according to data compiled by Bloomberg. That’s below its marketed range of $14 to $16 apiece. After the stock started trading Thursday, the shares climbed 33 percent to $16 at 10:36 a.m. in New York.

Ralf Schmid, chief financial officer at Vienna-based Nabriva, didn’t respond to requests for comment outside normal business hours. Edge Therapeutics spokeswoman Allison Wey declined to comment. CytomX also declined to comment.

Some biotech companies have been able to raise money in private rounds from so-called crossover investors, which typically invest in public companies. These investors aim to buy in to privately held companies at what they’re betting will be a discount to valuation that could later be fetched in an IPO -- when the holders can make a profit exiting their stake. A dwindling IPO market could signal trouble for crossover funding rounds as well, Lichter said.

“Right now, you see a lot of hedge funds and crossovers getting in relatively early-stage because they want to have a seat at the table when the IPO comes around," he said. “If the IPO is gone, all the money will go away."

The only biotech firm to increase its IPO size in the past month was Regenxbio Inc. The gene therapy company initially marketed 5.56 million shares at a range of $17 to $19 apiece -- an amount that was later increased to $22 a share, which is where the offering priced. The company declined to comment.

The company’s pedigree helps explain why it had more support even as the market faltered. Gene therapy is booming again after years of doubts in drugmakers’ ability to introduce new genes into the body to fix diseases. Prior to its public debut, Regenxbio’s backers included venture capital firm Venrock, the hedge fund Brookside Capital and a mutual fund run by Janus Capital Group. Alongside these prominent backers, Regenxbio’s chief scientific adviser is James Wilson, the scientist who pioneered gene therapy in the 1990s.       

“What you hope is that there is a significant pent-up demand for your story already," said Bruce Booth, a partner at Atlas Venture, based in Cambridge, Massachusetts. “If you have a blue-chip set of crossover investors, people who are already invested and know the company well, you already have a book being built."

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The biotechnology sector's two-and-a-half-year deluge of public market debuts, with dozens of companies raising billions of dollars in funding, is now down to a trickle.
biotech, ipo, investors, stock offerings
Thursday, 08 October 2015 01:15 PM
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