In the world of biopharma, a couple strong rounds of venture funding or a standout clinical candidate may spark the idea that a small startup has the goods to become a prominent player — and an initial public offering (IPO) could give it that last push, and capital, needed to get there.
The number of IPOs happening at any given time is often a litmus test for the industry. In abundance, they indicate a growing interest among investors for promising therapeutics, or a more relaxed regulatory environment that offers drugs hope of a quick trip to market. This was exemplified in 2014, when the healthcare industry saw 102 IPOs, 71 of which were biotechs, including Sage Therapeutics, Auspex Pharmaceuticals and Kite Pharma. Conversely, fewer IPOs indicate stagnant pipelines or a general lack of return on investment potential.
Three's a crowd?
Three biotechs have gone public so far in 2017. They are AnaptysBio, Jounce Therapeutics and ObsEva SA, while industry followers anticipate a fourth, Visterra Inc., to price its stock and conduct an IPO any day now. Those few new-to-the-exchange companies represent an uptick from 2016, when the first pharmaceutical IPO didn't happen until early February.
AnaptysBio filed its S-1 form, which companies use to signal their intent to go public, with the Securities and Exchange Commission in mid-November. The San Diego-based company, which focuses on inflammation treatments, planned to issue 4 million shares of common stock at $15 a pop, but on Jan. 25 announced it would increase the shares doled out to 5 million, still at $15 per share.
As such, AnaptysBio picked up $75 million from its IPO. Shares began trading the next day at $16 each, and increased about 4% to $16.62 per share at market's close on Feb. 1.
ObsEva stock also began trading on Jan. 26. It opened at $13.29 per share, but had fallen to $11.30 by close-of-market Wednesday.
The Swiss creator of reproductive health drugs had first announced its decision to go public in late December. Almost a month later, the company revealed it would offer 6.45 million shares of common stock at a range of $14-$16 per share, and expected it would net $87 million. The company landed in the center of its range, though, garnering $15 per share and netting $97 million.
Jounce Therapeutics filed for IPO on Jan. 3. The cancer drug developer later priced the nearly 6.4 million shares it prepared to issue at $16 per share, which resulted in $102 million in new capital. The stock began trading at $18 per share on Jan. 27. As of Wednesday, shares had fallen about 5% to $17.09 since that initial date.
More on deck
Expectations have Visterra going public before Feb. 5. Should that happen, it would cap off an IPO journey that has been on and off for more than a year. The Cambridge, MA-based company said it could raise up to $69 million through going public in a Jan. 3 filing with the SEC, but revised the amount down to around $50 million later that month. The company expects to offer 3.85 million shares of common stock priced between $12 and $14.
Another company to keep an eye on is Braeburn Pharmaceuticals. Like Visterra, Braeburn was scheduled to IPO this past week, selling about 7.7 million shares at $18-$21 per share and expecting to get a $150 million payout. But it pulled that IPO on Thursday due to the "current market dynamic," according to a Reuters report.
Whether 2017 will continue to outpace its preceding year — which saw 42 healthcare IPOs in the U.S. — is difficult to guess.
Some think there is a strong case for a brighter future. Atlas Ventures partner Bruce Booth projects more than 30 life science IPOs, the bulk of which would come from biotechs, on just the NASDAQ exchange in 2017. The prediction stems from a large crop of already filed IPOs and drugs progressing through the pipeline. What's more, fourth quarter healthcare IPOs increased in number and volume compared to third quarter — with 35 deals, up more 67%, worth a combined $8.15 billion, according to a BioPharm Insight report — offering optimism that the trend may continue into the new year.
""Coming out of J.P. Morgan this year there was more optimism."
Global Biotechnology Leader, EY
"Coming out of J.P. Morgan this year there was more optimism," EY Global Biotechnology Leader Glen Giovannetti said in an interview. "I don't think anyone was expecting generalist investors to plug back into the market and to see another year … like 2014 or something. But there was more optimism, and there were certainly many more companies lined up in the queue with confidential filings."
Others were not convinced. TheStreet's Adam Feuerstein, for one, said a company like Moderna going public would be the only IPO to catch investors' eyes in 2017.
EY's Giovannetti also cautioned that the Trump Administration and its potential to remodel tax or regulatory rules adds a big scoop of ambiguity to the IPO market.
"Strong deals will get out just based on investor appetite for especially exciting technology areas or clinical trial data," Giovannetti said. "But if you're going to have a much more robust market, you've got to get some interest from generalist-type investors. They're more risk sensitive to conversations about changes in drug pricing, for example, policy, those types of things."