One constant thread that runs through most biotech financing conversations these days centers on the biotech IPO market. After a tsunami of biotech offerings crashed into Wall Street from early 2013 to well into 2015, the wave inevitably crashed in a classic bear market reckoning.
But that doesn’t mean the biotech IPO window was shut. Instead, we’ve continued to see a reduced flow of new IPOs, and recently there have been some upbeat signs that investors may be regaining some of their old appetite for these risky affairs.
So where do we go from here? I have some thoughts on that, and so do the panelists who will be joining me for a discussion on biotech IPOs at BioPharm America™ on Tuesday, September 13 at 12:15pm at the Boston Marriott Copley Place. I’ll be joined by Christiana Bardon, the portfolio manager at Burrage Capital, Simos Simeonidis, an analyst I follow closely at RBC Capital Markets, and David Sabow, the life sciences chief at Silicon Valley Bank.
As far as Sabow is concerned, the new IPO market this year represents a “healthy reset in the market. We got a bit spoiled in 2014 and 2015 to some degree.” A lot of deals got done, and the market provided a lot of financing.
Now, there’s been a reversion to quality, as he sees it, with a higher bar for what it takes to complete a successful IPO.
The fundamentals of the market are pretty good, though, which speaks of the potential for a steady, if relatively reduced, stream of new IPOs in the year ahead.
“Where do you go for this kind of alpha opportunity?” he asks. “Biopharma is the spot,” particularly once you factor in how underwhelmed fund managers have been with the latest tech IPOs. “Biopharma is front and center.”
Generalist investors, though, have left the field in droves. Back in June, Adam Feuerstein at TheStreet noted that perhaps only the success of solanezumab in Eli Lilly’s second round of Phase III Alzheimer’s studies—data is due near the end of the year—could be a big enough catalyst to get investors back into biotech stocks in a big way. Sola may not be a great drug, he reckoned, but a positive outcome there could inspire widespread belief in Biogen’s late-stage rival aducanumab, driving a rally for the industry as a whole.
I asked Simeonidis what he thought of the big-event theory. His response:
I agree that confidence in the space has been shaky recently. I’m not sure it would be one or two big data readouts that can make the big difference. I think in order for sentiment to shift significantly we’d have to have more “good things” happen than bad:
- More positive data readouts, as a whole, especially if they come in significant trials and especially if they’re unexpected,
- FDA has to be consistent (approving good drugs/rejecting bad ones), without many delays,
- Launches have to go fairly well.
- Finally, in addition to the overall market and the biotech sector doing well, the stocks of the companies that have gone public in the past 12–18 months must have performed well.
I think if the majority of these events are on the positive side, investors will be a lot more inclined to look into putting money to play into biotech. I’m cautiously optimistic that 2017 will be a good IPO year. But we’ll see.
These days, any biotech CEOs who want to get in the IPO queue would be well advised to consider the deep insider participation needed to complete an initial public offering, notes Sabow. This is no time to file an IPO when you need the money, he adds. A certain flush profile with plenty of money in the bank is a good thing. And keep in mind that investors like to see more than one shot on goal for the companies they buy into.
We should have four distinctly different perspectives to offer on this topic. And I hope you’ll come and join us for the discussion on September 13. I’ll also be around for the day, talking to some of the biotechies who populate the Boston/Cambridge hub. Here’s a link to the details again.