Life-Sciences IPOs Take a Breather

By any measure, 2013 was a stellar year for life-science company IPOs on United States stock exchanges. A total of 50 companies completed initial public offerings through the first week of December and collectively raised $6.8 billion in capital.

But after a busy summer, the fever pitch of life-sciences IPOs cooled in autumn even as companies continued to be added to the queue. Only four companies completed IPOs in November 2013 while seven companies postponed their offerings and one company withdrew its deal.  

Year-end Caution
The slowdown reflects profit-taking by fund managers, who moved to book their gains to ensure their year-end bonuses, and it became difficult to get investors focused on new issues when they were more concerned about locking in profits as the year-end approached. The drop in the first day jump in prices reflects this, according to Burrill & Company analysis. Momentum drove the first day trading activity as investors chased first day IPO premiums generated within the sector.

Between Epizyme’s IPO at the end of May and Foundation Medicine’s initial public offering on Sept. 24, 2013, 18 life-sciences companies debuted on US public markets. The share price of seven of these 20 companies rose more than 50% in the first day of trading. The volume of trading for these companies shows the first day frenzy that sent these issues soaring, which peaked with Foundation Medicine’s 96.4% return on its first trading day when 7.7 million shares were traded.

Of the 14 subsequent IPOs since Foundation Medicine’s initial public offering, MacroGenics’ Oct. 9, 2013 IPO was the only one to price in the target range and deliver more than a 50% return on the first trading day. By comparison, the two drug developers to complete initial public offerings in November, Relypsa and Karyopharm, rose modestly, or not at all in their first day of trading (see Table I).

Table I:

US life-sciences initial public offerings (IPOs) in 2013: First day of return and IPO-to-date performance.

Ticker

Company

IPO Date

IPO Price (USD)

IPO Price v Target (USD)

First Day Return

Price 12/5/2013 (USD)

Return from IPO

LPDX

LipoScience

1/25/2013

9.00

-35.7%

20.0%

3.81

-57.7%

STML

Stemline Therapeutics

1/29/2013

10.00

-16.7%

11.5%

22.77

127.7%

NYSE:ZTS

Zoetis

1/31/2013

26.00

10.6%

19.3%

31.44

20.9%

KBIO

Kalobios

1/31/2013

8.00

-38.5%

0.0%

4.05

-49.4%

ENTA

Enanta Pharmaceuticals

3/20/2013

14.00

-6.7%

22.7%

27.58

97.0%

TTPH

Tetraphase Pharmaceuticals

3/20/2013

7.00

-36.4%

0.0%

11.66

66.6%

CGIX

Cancer Genetics

4/5/2013

10.00

-16.7%

12.5%

12.77

27.7%

OMTH

Omthera Pharmaceuticals

4/11/2013

8.00

-38.5%

0.0%

12.7

58.8%

CMRX

Chimerix

4/11/2013

14.00

0.0%

34.2%

15.05

7.5%

INSY

Insys Therapeutics

5/2/2013

8.00

-52.9%

21.3%

45.32

466.5%

RCPT

Receptos

5/8/2013

14.00

-6.7%

1.4%

27.64

97.4%

NYSE:Q

Quintiles Transnational

5/9/2013

40.00

5.3%

5.3%

41.87

4.7%

NYSE:BIOA

BioAmber

5/10/2013

8.00

-50.0%

5.0%

6.66

-16.8%

AMBI

Ambit Biosciences

5/15/2013

8.00

-42.9%

-7.6%

8.06

0.8%

ADHD

Alcobra (Israel)

5/21/2013

8.00

-27.3%

-5.6%

16.43

105.4%

PTLA

Portola Pharmaceuticals

5/22/2013

14.50

0.0%

4.5%

24.09

66.1%

EPZM

Epizyme

5/30/2013

15.00

7.1%

53.3%

23.14

54.3%

BLUE

Bluebird Bio

6/18/2013

17.00

13.3%

58.3%

21.12

24.2%

PTCT

PTC Therapeutics

6/19/2013

15.00

3.4%

9.9%

15.98

6.5%

NSTG

NanoString Technologies

6/25/2013

10.00

-28.6%

-19.4%

12.5

25.0%

ESPR

Esperion Therapeutics

6/26/2013

14.00

0.0%

3.6%

12.6

-10.0%

PETX

Aratana Therapeutics

6/27/2013

6.00

-50.0%

37.7%

18.63

210.5%

RNA

Prosensa

6/27/2013

13.00

8.3%

48.1%

4.51

-65.3%

OMED

OncoMed Pharmaceuticals

7/17/2013

17.00

13.3%

59.9%

28.38

66.9%

HTBX

Heat Biologics

7/23/2013

10.00

-9.1%

-4.3%

8.2

-18.0%

ICEL

Cellular Dynamics International

7/24/2013

12.00

-7.7%

-20.8%

15.02

25.2%

ONTX

Onconova Therapeutics

7/24/2013

15.00

15.4%

32.5%

16.36

9.1%

AGIO

Agios Pharmaceuticals

7/24/2013

18.00

20.0%

73.8%

18.04

0.2%

CNAT

Conatus Pharmaceuticals

7/24/2013

11.00

0.0%

-13.6%

6.87

-37.5%

MBII

Marrone Bio Innovations

8/1/2013

12.00

-22.6%

14.6%

13.86

15.5%

NYSE:XON

Intrexon

8/8/2013

16.00

6.7%

54.6%

20.79

29.9%

RGDO

Regado Biosciences

8/21/2013

4.00

-73.3%

17.5%

4.8

20.0%

FPRX

Five Prime Therapeutics

9/17/2013

13.00

0.0%

0.6%

11.01

-15.3%

XLRN

Acceleron Pharma

9/18/2013

15.00

0.0%

33.3%

24.11

60.7%

BIND

BIND Therapeutics

9/19/2013

15.00

0.0%

-6.1%

11.28

-24.8%

FMI

Foundation Medicine

9/24/2013

18.00

20.0%

96.4%

24.33

35.2%

OPHT

Ophthotech

9/24/2013

22.00

25.7%

19.5%

28.91

31.4%

EVOK

Evoke Pharma

9/24/2013

12.00

-7.7%

-2.2%

8.1

-32.5%

ENZY

Enzymotec

9/26/2013

14.00

-17.6%

29.7%

27.1

93.6%

FATE

Fate Therapeutics

10/1/2013

6.00

-60.0%

10.3%

6.14

2.3%

LDRH

LDR Holding

10/8/2013

15.00

0.0%

29.0%

23.53

56.9%

MGNX

MacroGenics

10/9/2013

16.00

6.7%

56.2%

25.76

61.0%

OTCBB:ADMA

ADMA Biologics

10/17/2013

8.50

-41.4%

0.6%

7.4

-12.9%

AERI

Aerie Pharmaceuticals

10/25/2013

10.00

-33.3%

5.5%

14.35

43.5%

VCYT

Veracyte

10/30/2013

13.00

-7.1%

-4.7%

13.49

3.8%

KPTI

Karyopharm Therapeutics

11/6/2013

16.00

6.7%

0.3%

16.03

0.2%

TNDM

Tandem Diabetes Care

11/13/2013

15.00

7.1%

45.6%

24.8

65.3%

RLYP

Relypsa

11/15/2013

11.00

-37.1%

9.7%

19.6

78.2%

OXFD

Oxford Immunotec Global (UK)

11/21/2013

12.00

-14.3%

28.3%

18.03

50.3%

XNCR

Xencor

12/3/2013

5.50

-63.3%

51.6%

7.55

37.3%

Overall, the 50 life-sciences companies that completed IPOs on US exchanges in 2013 produced on average a return of 38.3% as of the beginning of December 2013. That return outpaced the major indices during the same period as the Dow Jones Industrial Average rose 22.8%, the S&P 500 climbed 26.6%, and the Nasdaq Composite Index gained 34.5%.

The 37 therapeutics companies, which comprise three quarters of these offerings and have been among the top performers, were up an average 45% from their IPO price on Dec. 4, 2013. As a group, the 50 life-sciences IPOs have on average raised 2.5% more capital than their target, priced their shares 13.4% below their target, and sold 22.9% more shares than originally planned.

Since Foundation Medicine’s IPO in September, though, the 14 companies that have gone public have on average raised just 0.7% above their target in capital, priced their shares 16.8% below their target, and sold 29% more shares than planned.

As of Dec. 5, 2013, there were still 15 companies in the IPO queue, eight of which announced their target price range and number of shares. Six of these companies have postponed their deals for the time being.

Investors Leaving Sector
However, the changed expectations of investors and the slowdown in offerings is not a sign that the window for life-sciences IPOs is closing, but a sign that investors looking for a quick return are leaving the sector. Now companies seeking to go public will have to focus on the fundamental healthcare and biotech investor who has sustained the industry from its inception. These long-term holders can once again find reasonably priced deals and more rational price appreciation.

The latest biotech to complete an IPO in the US, Xencor, is a case in point. Xencor is a clinical-stage company developing engineered antibodies optimized to treat autoimmune diseases, allergies, and cancer. After testing the waters in mid-September when biotech IPOs were hot, Xencor filed to go public at the end of October and announced that it planned to offer 5 million shares at $14 to $16 a share. When it failed to capture the interest of investors at that price, it dropped its target price to $7 a share and more than doubled the number of shares it planned to offer. Nevertheless, it still failed to price its offering. In mid-November, it postponed its deal, coming back two weeks later with an even lower price and an increase in shares.

Xencor completed its IPO on Dec. 3, 2013, pricing 12.7 million shares at $5.50 a share to raise $70 million. While it raised almost as much capital as it had originally planned to do, Xencor slashed its price 63.3% and raised the number of shares offered by 154% to complete its IPO.  

Going forward, the companies in the IPO queue may well have to do what Xencor did if they want to become public companies. And investment bankers that have touted deals with stories of hot demand and opportunities for quick returns will need to change their pitches. The stories will need to focus on the fundamentals of a company and its value.  

About the Author

G. Steven Burrill is chief executive officer at Burrill & Company, San Francisco, CA, 415.591.5400,

[email protected]