Biotech IPOs show no signs of slowing down in 2018
Less than five years after co-founding Denali Therapeutics Inc., CEO Ryan Watts found himself ringing the NASDAQ opening bell on Dec. 8.
It's a fairly common custom for executives who helped bring their companies to the stock exchange, but one made more special after Denali's $248 million initial public offering wound up being the biggest in biotech in 2017.
The South San Francisco, California-based company's strong start capped off a solid year for biopharmas going public. AnaptysBio Inc. and ObsEva SA got things going on Jan. 26 — and have since watched their stocks take vastly different trajectories. Another 38 drugmakers would join them in the coming months, along with a handful of medical device and diagnostics makers. In total, 44 healthcare companies conducted their first U.S. public offerings in 2017, according to research firm Renaissance Capital LLC.
The numbers underscore how biotechs propped up the U.S. IPO market, as well as the healthcare sector's place in it, this year. Since 2013, around 30 or more drug developers have commenced IPOs annually, and market researchers expect a good turnout in 2018 too.
Now vs. then
Uncertainty surrounding whom would succeed former president Barack Obama weighed on the biotech market in 2016, while 2017's promise for tax reform under Donald Trump's administration offered a rosier outlook. The IPO market, by extension, reflected that change, though it took some months to rebound.
"The NASDAQ biotechnology Index lost 22% in 2016, and I think that hit biotech IPOs in the first quarter [of 2017]," Renaissance analyst Matt Kennedy told BioPharma Dive. "So at the start of the year, we had the worst quarter for biotech IPOs going back to 2012."
(Importantly, Renaissance excludes from its coverage companies that fetch less than $5 million through their IPOs, file as a best efforts min/max offering or have a market cap of less than $50 million, meaning the firm's tally doesn't include BeyondSpring Inc., which raised $3.5 million through an IPO in March.)
Despite a more muted performance in the early months of 2017, the index gained momentum over the course of year, and with it the biotech IPO market. During the second quarter, for instance, more than a dozen pharmaceutical manufacturers entered the public exchanges, including Aileron Therapeutics Inc., argenx SE and G1 Therapeutics Inc.
By mid-December, around 40 biotechs and pharmas had conducted IPOs, up from 29 in 2016. Deal values were also higher in 2017, as the companies collected a total of $4 billion versus the prior year's $2 billion.
Eye-catching work in areas like CAR-T and gene-editing helped fuel investor interest in these smaller drug companies, according to Bob Coughlin, CEO of the Massachusetts Biotechnology Council, or MassBio.
"What you’ve got to look at is the quality of the science; if you look at innovation coming out of our industry right now it’s at an all time high," Coughlin said. "The analysts and the market and the public see gene and cell therapy as a reality, and they think 'hey, I want in on it now.' "
Of course, some companies were more successful at the IPO game than others.
AnaptysBio Inc. is one. The San Diego-based biotech, which sports a pipeline of anti-inflammation medicines, raised $75 million by selling five million shares for $15 a pop. Since coming to the NASDAQ in late January, the company has seen its stock grow by more than 400% to trade at $91.96 per share as of Dec. 15.
Key to that growth were data from a Phase 2a proof-of-concept study released in October that showed 83% of patients who took the company's lead candidate, ANB020, had a 50% improvement in eczema area severity index after a month of treatment.
Denali is another clear winner. The neurodegenerative disease-focused firm held the largest biotech IPO of 2017, raking in $248 million by offering 13.9 million shares priced at $18 apiece. A noteworthy point with Denali is that almost all of its pipeline is still at the pre-clinical stage. DNL201, the company's lead candidate, is in Phase 1 testing for Parkinson's disease, yet is also under a partial clinical hold from the Food and Drug Administration based on toxicity findings from animal studies.
When a company increases the number of shares it plans to offer or the price at which it intends to sell those shares, it's usually because an IPO underwriter has gauged better-than-expected interest from potential investors.
To that end, Rhythm Pharmaceuticals Inc. and BioHaven Pharmaceutical Holding Co. Ltd. also delivered compelling IPOs. Both priced shares at $17 apiece, above their initial ranges of $14 to $16. Boston-based Rhythm offered 7.1 million shares and has since seen them climb up to more than $27 apiece, while New Haven, Connecticut-based BioHaven offered 9.9 million shares that are now trading at more than $23 apiece.
Though it came to the NASDAQ on the same day as AnaptysBio, ObsEva hasn't been as well received by investors. The Swiss biotech, which is working on reproductive health and pregnancy therapeutics, has watched its stock trickle down from $15 per share during its IPO to $9.80 per share by Dec. 15. ObsEva isn't the worst in that category, however. Zymeworks Inc. and Aileron have experienced slightly steeper stock declines, and also raised much less money through their IPOs than ObsEva did with its $98 million haul.
A few companies also priced below their IPO share price ranges. Arsanis Inc. represents the most severe case, as it initially planned on offering 3.1 million shares of common stock at $15 to $17 apiece, but ended up offering 4 million shares at $10 apiece.
Lastly, some companies didn't even make it through with their IPOs. Braeburn Pharmaceuticals Inc. and Visterra Inc. both withdrew their filings in the early months of 2017, citing unfavorable market conditions. Accelerated Pharma Inc. had arguably the messiest endeavor, though, as the Illinois-based drugmaker revised its IPO terms at least three times before withdrawing.
Forecast for 2018
Setbacks aside, more than half of the biotechs and pharmas that went public this year have stock trading above the initial per share price set during their IPOs.
Many of the companies also generated millions of dollars through private placements. Renaissance Capital has highlighted a "heavy" amount of insider buying within biotech IPOs this year — a trend that doesn't look like it will change drastically in the near term.
"There's been innovations in the science that's driven funding," Renaissance's Kennedy said. "So they'll file and they'll say 'we're raising $100 million,' but insiders are taking down 50% of the deal."
As for 2018, industry watchers note that biotech IPO market looks ready for more action. Dealmaking was pretty underwhelming this year, which could incentive smaller drugmakers that didn't get acquired or ink a lucrative licensing agreement to seek a public listing. Meanwhile, private equity and venture capital investments have continued to pour in from the U.S. and abroad.
"I don't see any reason why a significant number of biotechs shouldn't come to market [in 2018]," Kennedy said, adding that, of the companies that have conducted an IPO, "they've been doing well for the most part; some of them have been doing very well, which means capital is available. And we've actually seen an increase in foreign biotechs listing in the U.S., so U.S. capital markets are receptive to biotechs and they're taking advantage of that."
|Company||Priced Date||Initial Price||% Change since pricing|
|Denali Therapeutics Inc.||12/7||$18||+15.3% ▲|
|Odanate Therapeutics LLC||12/7||$24||-3% ▼|
|SCPharmaceuticals Inc.||11/17||$14||+6.6% ▲|
|Arsanis Inc.||11/16||$10||+27.2% ▲|
|Erytech Pharma SA||11/10||$23.26||-18.3% ▼|
|Apellis Pharmaceuticals Inc.||11/9||$14||+2.1% ▲|
|InflaRx N.V.||11/8||$15||+24.7% ▲|
|Allena Pharmaceuticals Inc.||11/2||$14||+6.4% ▲|
|Spero Therapeutics Inc.||11/2||$14||-21.4% ▼|
|Ablynx N.V.||10/25||$17.50||+36% ▲|
|Optinose Inc.||10/13||$16||+16.3% ▲|
|Rhythm Pharmaceuticals Inc.||10/5||$17||+61.2% ▲|
|Deciphera Pharmaceuticals Inc.||9/28||$17||+1.5% ▲|
|Nightstar Therapeutics Ltd.||9/28||$14||+10.1% ▲|
|Nucana plc||9/28||$15||-26.5% ▼|
|Krystal Biotech Inc.||9/20||$10||+5.1% ▲|
|Zai Lab Ltd.||9/20||$18||+42.8% ▲|
|Zealand Pharma A/S||8/9||$17.87||-25.6% ▼|
|Clementia Pharmaceuticals Inc.||8/2||$15||+7.3% ▲|
|Sienna Biopharmaceuticals Inc.||7/27||$15||+51.7% ▲|
|Kala Pharmaceuticals Inc.||7/20||$15||+22.3% ▲|
|Akcea Therapeutics Inc.||7/14||$8||+133.1% ▲|
|Aileron Therapeutics Inc.||6/29||$15||-30.7% ▼|
|Dova Pharmaceuticals Inc.||6/29||$17||+80.7% ▲|
|Mersana Therapeutics Inc.||6/28||$15||+13.6% ▲|
|Avenue Therapeutics Inc.||6/27||$6||-18.8% ▼|
|Athenex Inc.||6/14||$11||+40.4% ▲|
|G1 Therapeutics Inc.||5/17||$15||+30.7% ▲|
|Argenx SE||5/17||$17||+224% ▲|
|Ovid Therapeutics Inc.||5/5||$15||-23.3% ▼|
|Biohaven Pharmaceutical Holding Co. Ltd.||5/4||$17||+26.7% ▲|
|Urogen Pharma Ltd.||5/4||$13||+188.8% ▲|
|Zymeworks Inc.||4/28||$13||-33.9% ▼|
|Verona Pharma plc||4/27||$13.5||-14.8% ▼|
|Tocagen Inc.||4/13||$10||+5.5% ▲|
|BeyondSpring Inc.||3/9||$20||+55.9% ▲|
|Jounce Therapeutics Inc.||1/26||$16||-9.6% ▼|
|Anaptysbio Inc.||1/27||$16||+490.7% ▲|
|ObsEva SA||1/27||$15||-34% ▼|
*% price changes are based on stock prices as of Dec. 12
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