by Jacki Jenuth and peter van der Velden
PUBLIc MARkETS
are we seeing
the return of ipos?
The big story for the first half of the year has been the opening of an IPO window for the biotech industry. 12 BIOTECHNOLOGY FOCUS September 2013
A
fter a dry spell of nearly five years, more money was raised in the first half of this year than in any one year since 2007. For the first half of the year, nearly $1.4 billion was raised by 14 companies. If the second half of the year is anything like the first, we’re looking at the best market for IPOs in over a decade! (see Figure 1). So, of course we have to ask: a) what fac-
tors are driving this? b) who is investing? c) what type of companies are getting funded? and d) what if anything does this mean for the industry overall? The answer to the first question is multifaceted. The first part is simply pent up demand. There have been a great number of really good companies formed during the past six years (funded mainly by VCs), that have not yet achieved liquidity via acquisition (for the most part by design) and that until recently had not been able to access the public markets. Secondly, on the buyer side there has been a lot of good news to support increased participation in the sector. On the regulatory front there were 39 new drugs approved in the U.S. in 2012, the most in over 16 years. The public biotech sector along with the IPOs that have priced over the past several years have performed well for investors with the sector up 27 per cent this past year. The biotech sector has outperformed the broader NASDAQ by a whopping 11 per cent (27 per cent vs. 16 per cent) and since 2011 the NASDAQ biotechnology index has increased 88 per cent vs. a paltry 29 per cent for the S&P. Finally, many earlystage public companies have proven to be good acquisition targets for large pharma and biotech, providing investors with outsized returns. Examples include the recent acquisitions of Optimer and Trius by Cubist (both north of $800 million), AstraZeneca acquiring Omthera Pharmaceuticals for up to $443 million just three months after going public, and larger deals over the past couple of years including Gilead’s purchase of Pharmasset for $11 billion. Responding to this performance we have seen the mix of investors change substantially. A few years ago, the IPO call list was pretty short and really only populated with a few highly focused healthcare specific investors (in the high single digits). Today, there are many more investors participating in IPOs that are getting completed and included in this group, a far greater number of generalists as they look to catch the biotech wave. As to who is getting funded, it is pretty clear that overall, the industry has learned from the early 2000s how to be much more selective. Of those companies that have successfully passed through the IPO window, the most common characteristic seems to be that they have significant partnerships with corporate partners. Virtually continued on page 14
