IPO Update: High-Flying Biopharma IPOs Average 77.1% Return Through Q2

BY MANDY JACKSON

Executive Summary

The performance of 29 biopharma firms that launched IPOs during the first half of 2020 is staggering compared with 28 drug developers that went public in the first half of 2019 with a 10% average return.

The market for initial public offerings by biopharmaceutical firms during the second quarter of 2020 was exceptional in many ways, including the remarkable rebound in June when 14 companies went public in the US after the COVID-19 pandemic closed the IPO window in March. Despite the ongoing uncertainty related to the novel coronavirus, 28 drug developers and a buyer of pharmaceutical royalties went public during the first half of 2020 and generated an average return of 77.1%.

While the first half of 2019 was a fairly healthy quarter for biopharma IPOs, the performance of companies that went public during the first half of this year is staggering in comparison. And despite the unknowns surrounding COVID-19 – including whether the US will be able to reverse the recent rise in cases while other countries see their numbers fall – Renaissance Capital expects the good times to continue.

“Entering the third quarter, a lot still depends on the broader markets, which remain volatile and vulnerable to unexpected developments such as renewed COVID-19 outbreaks and trade issues,” the IPO-tracking firm said in its second quarter US IPO market review. “With a backdrop of strong returns and the IPO window finally flung open, there is substantial appetite for IPOs to price during the [third quarter] and avoid the uncertainty over the US presidential election and a possible second wave of COVID-19 in the fall.”

Renaissance noted that health care was the dominant industry for IPOs in the second quarter, with 24 out of 39 first-time offerings in the quarter. That’s not surprising, since the Nasdaq Biotechnology Index is up 13.5% year-to-date as of 30 June versus a 12.1% rise for the broader Nasdaq and a 4% decline for the S&P 500.

Biopharma companies launched 29 IPOs during the first half of the year, including 20 in the second quarter, raising a total of $7.2bn (see table below). These numbers include Royalty Pharma, which does not develop drugs but lends money to therapeutics firms in exchange for a portion of royalties from sales of their products. After an initial $2.18bn raised by Royalty and certain investors when the IPO launched on 16 June, the firm ultimately raised $2bn and shareholders that also sold stock in the offering raised $500m by the time the offering closed on 18 June. (Also see “Royalty Pharma Nears Biopharma Record Take With $2.18bn IPO” - Scrip, 16 Jun, 2020.)

When limiting the 2020 tally only to companies that develop drugs, the 28 biopharma firms that have gone public in the US so far this year have raised $5.2bn – a still-impressive total compared with the 28 drug developers that went public during the first half of 2019 and raised $3bn. (Also see “IPO Update: 28 Biopharma Companies Raise $3bn, Provide An Average 10% Return” - Scrip, 28 Jun, 2019.) The positive performance of this year’s IPOs was seen almost across the board during the first half of 2020. There were 25 companies trading in positive territory and four in negative territory as of 30 June versus last year, when 13 companies were in the black as of the end of the first half of 2019, 14 were in the red and one traded flat.

In terms of the scope of biopharma IPO performance through the first half of their respective years:

• In 2020, eight companies’ stock prices ended 30

June at more than two times their IPO values and one closed at five times its IPO price; another five companies’ stocks gained more than 50%, but less than 75%, while five closed more than 75% higher than their IPO values but less than 100%.

• In 2019, two companies’ stock prices doubled as of 30 June versus their IPO values; two gained more than 50%, but less than 75%; and only one rose more than 75% but less than 100%.

• In 2020, seven companies raised $100m to $200m, 12 raised $200m to $300m and three raised $300m or more. The average per biopharma IPO was $249.1m or $186.5m excluding the $2bn raised by Royalty Pharma.

• In 2019, nine companies raised $100m to $200m and two raised $300m or more. The average per biopharma IPO was $105.7m.

“After coronavirus volatility caused the slowest April and May since the Great Recession [of 2007- 2009], IPO activity roared back in June, buoyed by stellar returns,” Renaissance said in its second quarter report. “During the quarter, nearly every IPO upsized or priced above the midpoint [of proposed price ranges], and IPOs averaged a 38% first-day pop, and a 61% return from offer.”

“Health care made up two-thirds of activity, driven by high-flying biotechs, which are largely insulated from the pandemic,” the investment adviser said.

Renaissance noted that even without Royalty Pharma’s IPO, the second quarter was the largest quarter since 2011 for biotech IPO fundraising.

Three companies added themselves to the biopharma IPO queue via SEC filings submitted on 26 June:

• ALX Oncology Holdings Inc. in Burlingame, CA, which raised a $105m series C venture capital round in February, said in its filing that it will raise up to $100m in an IPO to fund clinical development and manufacturing activities for its CD47 checkpoint inhibitor ALX148. (Also see

“Venture Funding Deals: ALX Oncology,

Transcenta Break $100m Barrier With Recent

Rounds” - Scrip, 3 Mar, 2020.) • Emeryville, CA-based Berkeley Lights Inc., which provides cell biology insights to enable its customers’ development of antibody therapeutics, cell therapies and synthetic biology, also said it wants to raise up to $100m in a forthcoming IPO. (Also see “Showcasing Its

Pandemic Response Drug Discovery, Berkeley

Lights Prepares For IPO” - Scrip, 1 Jul, 2020.)

• Pandion Therapeutics Inc. in Watertown, MA intends to raise up to $75m in its planned IPO.

The company, which is developing modular proteins and bifunctional antibodies for autoimmune diseases, closed an $80m series B round on 1 April. (Also see “Finance Watch: iTeos, Pandion And Aspen Show COVID-19

Hasn’t Slowed VC Deals Yet” - Scrip, 1 Apr, 2020.)

See page 23 for table on Second Quarter 2020 IPO Performance

Second Quarter 2020 IPO Performance

The 29 biopharma firms that went public in the US during the first half of this year generated a 77.1% average return and raised $7.2bn. Excluding Royalty Pharma, which raised $2bn, 28 drug developers brought in $5.2bn and had an average return of 77.3%.