Where Have All The Biotech IPOs Gone?
8 CommentsBy Ed Silverman // November 3rd, 2008 // 9:42 am
Long time passing. The IPO market has virtually shut down in all industries, with no deals in the US in nearly three months, but Reuters notes that biotechs that are desperate for capital may have to wait much longer than others when a turnaround occurs.
There has not been one, biotech IPO since November 2007, when Nanosphere, which develops diagnostic tests, made its $113 million debut at the bottom of its price range. Since then, the stock fell 68 percent, compared with just a 16 percent drop in the sector, according to the Nasdaq Biotech index. And in the last two weeks, nearly half of the biotechs in the IPO pipeline have dropped out.
They include drug delivery company CyDex Pharmaceuticals, which pulled its filing on Tuesday, and two others that withdrew offerings last week - Xanodyne Pharmaceuticals, which focuses pain management, and Phenomix, which specializes in diabetes treatments. Just five biotechs are queued up for an IPO, with deals totaling $330.5 million, according to Thomson Reuters data.
“We’re in a period where small cap names are not attractive,” Eric Schmidt, a Cowen biotech analyst, tells Reuters, adding that many larger biotechs that already trade stock publicly are attracting investors because they are “defensive” stocks. “We’re not looking at any revenue cliffs in five years,” he notes.
The greatest threat to the return of biotech IPOs is the nearly universally poor performance of biotech stocks, analysts said, despite biotech once being the hottest sector, Reuters notes. Only seven of the 61 biotechs to have gone public since 2000 are currently trading above their IPO prices.
Don
Maybe this has to do with perceptions about financing. If a small biotech can’t get financing, it’s not likely to survive until its product wins FDA approval.
Hey Ed: it would help when you write about biotech companies if you told us where they are headquartered. You mentioned a couple in your latest post, but did not include their HQ location. Are they in the Philadelphia area?
By the way, I recommended your blog to everyone who attended my two roundtables on blogging during the 68th annual conference of the American Medical Writers Association in Louisville, Kentucky last month. Your blog is awesome, mostly due to the frequency of posts. Keep up the good work!
Ed Silverman
Hi Don,
Good point. I’ll try to remember to do mention headquarters. I generally don’t bother for the biggest companies, but should include the info for those smaller outfits.
So to answer your question, CyDex is in Lenexa, Kansas; Xanodyne is in Lexington, Kentucky; Phenomix is in San Diego, and Nanosphere is in Northbrook, Illinois.
And thanks for the recommendation and kind words. That was very nice of you. I’m trying. It’s a lot of work, but also a lot of fun.
Cheers
ed
Christopher
The VC market for biotechs and small pharma has been brutal since early this year. Venture backings (US) for biotechs halved between Q1 and Q2 and dollars invested dropped by 40%. Outside US backings dropped by almost 50% in the same period.
VC firms are becoming very conservative in the investment decisions. They are looking for less risky later stage investments and even then are scrutinising candidates more closely than ever.
The current economic climate is making investments in their existing portfolio companies look sick so new companies looking for money are facing very difficult times. As a result, unable to raise money now, some biotechs are selling future royalties for money now.
Outside the Box
In addition I think it is important to remember that a lot of companies that would have previously been looking to IPO as their exit are now looking at licensing and acquisition deals as a preferable route. Going IPO is not only a risky strategy with regard to how the markets will look at the time of the offering, it also puts the management of the company into a totally different mindset - which frequently doesn’t gel with the ways in which the owners would like to go.
VC have not really been “venture” based for a few years now. Their preference for progressively less risky deals has led them away from their old model of early funding for biotech into an approach that only allows them to look at later stage deals. The entire structure of this financing model has changed and will continue to change as the industry moves closer and closer to the Hollywood model where much more of the early stage funding comes from sources outside the “established” VC and investment bank institutions. For example, examine the way that disease based non-profits are taking an increasingly prominent ownership-based role in drug development.
Nathan
Outside the box:
You write “For example, examine the way that disease based non-profits are taking an increasingly prominent ownership-based role in drug development.”
Can you elaborate on this? My understanding is that nonprofits generally fund very early stage (academic-like) research — but do not really pump money into real drug development. If you disagree, can you provide me with a few examples?
It seems to me that non-profit funded drug discovery is a great way to deal with 3rd world diseases and orphan diseases. However, I haven’t been able to find any examples where this has actually worked.
Christopher
There are some interesting public:private collaborations that are developing drugs for neglected diseases. The Medicines for Malaria Venture is backed by government money as well as the Gates Foundation. It’s a public:private partmnership that funds discovery and development of new treatments for malaria. Another is BIO ventures for Global Health and there are many others besides.
Lilly has a TB initiative that splits ownership with companies that provide compounds. The Microbial Chemistry Research Foundation, a non-profit group, recently donated a compound to the initiative which is set up to be non-profit. Lilly funds the development but doesn’t receive any income from its investment. So it’s a hybrid of what Nathan touches on.
I wasn’t sure if Outside the box intended to imply that non-profits are directly funding drug development rather than maintaining ownership through patents and other IP but with ‘commercial’ funding coming from elsewhere.
Outside the Box
One of the best examples is the cystic fibrosis foundation. I know this is a small indication but some of their activities show promise for applications in the broader respiratory space. What I’m seeing is a gradual shift in the thinking within the non-profit world that suggests direct ownership or funding that has direct influence over the way in which IP is managed.
This trend is also seen in the way in which tech transfer offices have changed in recent years. There are now universities where the development of IP has as much influence over things like tenure decisions as do publications. When a university like Emory can garner over $600 million in royalty income from developments that lead to marketed drugs it tends to focus the attention of everyone involved (especially as the inventors get a pretty good share of that income).
I am not suggesting that this is currently a major factor in drug development - it is still a tiny fraction of a percentage of all R&D spending - but I am sure that this trend will increase in the near term and it will create a shift in the direction of some research as well as creating new opportunities for different business models.
Outside the Box
Ed
I posted at 4:25 but the system says 5:25 - did you forget something?