May 22 The tide may have started to turn for
initial public offerings from U.S. biotechnology companies, as a
rising stock market, low interest rates and a lack of market
volatility entice investors to take on the high risk inherent in
After years of being shunned, small biotechs are getting a
closer look as equity investments even though many of them come
to market before turning profit or delivering product to market.
Indeed, 14 biotechs have gone public in 2013, marking the
sector's best start since 2007, according to market data firm
Ipreo. What's more, biotech IPOs have turned in a strong
performance, delivering an average return of about 20 percent
this year, compared with an average of 16 percent across all
"The market for biotech isn't screaming hot, and it's not
like everyone can get deals done, but we're seeing attractive
returns being generated," said Bob Carey, a managing director at
JMP Securities who works with biotech companies. "It's a
The fortunes of most clinical-stage biotechs are riding on a
single drug, making them particularly risky investments.
The release of important data on a treatment under
development is an event that can either destroy the company's
prospects, or attract new investors or major pharmaceutical
companies seeking to license a promising drug.
On Tuesday night, Portola Pharmaceuticals, a biotech
developing drugs to prevent stroke-causing blood clots, raised
around $123 million in its IPO. The deal, which attracted
sufficient demand to price a day early and to offer more shares
than expected, values the company at $469 million.
Biotech IPOs have, on average, raised proceeds of around $70
million, according to data from Ipreo and Thomson Reuters, with
a mean valuation of around $200 million. The relatively large
size of Portola's IPO and the company's implied valuation may
show the biotech market is hitting a new stage, bankers say.
Unlike in most other sectors, biotechs use IPOs to raise
financing to fund the next stage in the drug development cycle,
not as exit opportunities for early investors in the company.
That may help explain why more biotechs are launching IPOs
in recent years, a time when access to private capital is drying
up. It also shows why the amounts involved are often relatively
Regulus Therapeutics Inc, a biotech that develops
drugs for several diseases, priced its October IPO at the low
end of range, but its shares have risen 75 percent since then
even though its treatments have yet to begin clinical testing.
Fundraising by life-science venture capitalists has
decreased steadily since 2008, according to Fenwick & West, a
law firm that works with life sciences companies. The percentage
of venture funding allocated to life sciences fell to 12.5
percent last year, from 19 percent in 2009.
Just getting the IPO priced and closed, and gaining access
to capital markets, is a success for biotechs, said Lia Der
Marderosian, a partner at WilmerHale, who works with life
"This is opposed to tech companies who you'll frequently see
price above the range and then trade up significantly. That just
doesn't typically happen for biotech companies."
U.S. legislation passed last year to make it easier to go
public, known as the Jobs Act, has helped the biotech sector by
allowing companies to court potential investors before a formal
roadshow. Companies can spend more time educating investors
about their products and technology. That's particularly helpful
in biotech, where the timing of an IPO often depends on a drug's
chances of gaining regulatory approval.
To be sure, investors are still being selective about the
biotech sector and not every company will make the cut if they
lack sufficient funding and a large potential market to tap.
Shares of Omthera Pharmaceuticals Inc, a
later-stage biotech developing therapies to lower the blood fat
triglycerides in high-risk heart patients, have dropped 13
percent since when the company went public in April.
Omthera priced shares at $8, well below the expected range
of $13 to $14, as investors proved skeptical that the biotech's
drug, Epanova, could compete with existing products.
"Investors aren't just focused on what phase a drug is in
the development cycle," said Steven Tuch, a managing director in
equity capital markets at BMO Capital Markets. "It's about an
addressable market, being well-capitalized and having near-term
and multiple milestones."