Biotech Boomlet Set To Smash IPO Record For Two-Week Period

Last year saw the most biotech IPO activity in over a decade, both in number of deals (37) and proceeds ($2.7B). Yet when Q4 experienced a 50% decline in the number of these IPOs over Q3, and especially when 6 deals were postponed in November, it seemed the market for biotechs had lost steam. 2014 is proving otherwise, as the industry is once again dominating the IPO calendar.

Two biotechs, Dicerna (DRNA) and Celladon (CLDN), have priced upsized offerings this week, three were scheduled to price Thursday, and eight more are on next week's calendar. With two more in mid-February, that's a total of fourteen biotechs in two weeks. Even in the busiest period last year, the maximum number of biotech offerings in a two-week period was merely six in September. Before that, there had not been six during a two-week period since August 2000. Altogether, biotechs represent 52% of all currently scheduled deals, compared with a historical average close to 9% of pricings. Just through mid-February, the estimated proceeds for all planned and priced IPOs this year are $943 million, more than the total seen in any year from 2008 to 2012.

Biotech stocks have generally performed extremely well recently, with Dicerna a standout example. Dicerna was up 207%, which is the highest first-day pop for a biotech in over ten years. Since 2001, only two IPOs-- both Chinese Internet companies (Baidu (BIDU) and Youku (YOKU)), have ended the first day up more than 140%. While the other two biotechs to go public this year have performed more modestly (up 11% on average), the average 2013 biotech was up 72%. Also impressively, the average biotech to go public in 2011 to 2012 has gained over 250%.

Biotech Performance Since 2011
Time of Pricing	IPO Count	Average Deal Size	Average Market Cap at IPO	Average First- Day Return	Total Return*
4Q13	7	$72	$256	28%	108%
3Q13	14	$75	$320	22%	38%
1H13	37	$74	$293	20%	87%
2011 - 2012	17	$71	$269	13%	268%

*Equal weighted average as of 1/30/14

The biotech bonanza is due to the emergence of several favorable conditions. First, the actual bioscience has made rapid advancements, evidenced by two gene therapy IPOs. Next, the FDA has put greater emphasis on accelerating the approval of life-saving drugs, so they do not stand by in interminable review. Investors have also been very receptive in their appetite for biotechs, further driving these IPOs just as the companies need critical financing. Finally, financial statements must be re-audited if an IPO occurs after February 14th. The biotechs are then eager to make it through this window of opportunity as science, regulation, and capital converge.

Particularly unusual is the number of pain-relief companies that have launched - appropriate for investors after last week's market dive. In fact, just one of the fifty-four biotechs over the past three years were focused on novel pain treatments, but the next two weeks will see four. Trevena is developing a potentially more powerful replacement for morphine, while Cara (CARA) and Egalet (EGLT) are designing less addictive treatments.

Pain Relief IPOs on the Calendar
Company	Ticker	Description	Offer Date	Stage of Lead Candidate	Deal Size
Cara	CARA	Novel opioid pain medication	1/31	Phase 3	$60
Trevena	TRVN	Pain & acute heart failure	1/31	Phase 2a complete	$60
Egalet	EGLT	Abuse-deterrent oral pain meds	2/7	Phase 2/3	$42
Flexion	FLXN	Injectable pain therapies for osteoarthritis	2/12	Phase 2b complete	$65

The IPO calendar also calls for a breakout of IPOs that target rare diseases. Rare disease biotech IPOs were very successful in 2013: Acceleron (XLRN), Agios (AGIO), Epizyme (EPZM), and PTC (PTCT) are all up more than 50%. Investor interest in the space seems to remain very high, as Dicerna's record trading and Ultragenyx's increased price range ($19-$20 from $14-$17) illustrate.

Rare Disease IPOs on the Calendar
Company	Ticker	Description	Offer Date	Stage of Lead Candidate	Deal Size
Dicerna	DRNA	RNAi treatments of liver disease & cancer	1/30*	Preclinical	$90
Ultragenyx	RARE	Metabolic genetic diseases	1/31	Phase 2/3	$94
Auspex	ASPX	Treatments for orphan diseases	2/5	Phase 3	$61
uniQure	QURE	Gene therapies for orphan diseases	2/5	Phase 3 complete	$64

*Priced upsized deal at $15 and closed up 206% on its first day of trading.

Consistent with the first two groups, the remaining deals on the calendar are generally in a late stage of development and are looking to raise less than $75 million. Genocea (GNCA) has developed vaccines that, by activating T cell responses, could be used to treat herpes and protect against pneumonia. Argos is relaunching its IPO after postponing a February 2012 offering. It is developing immunotherapies for cancer and HIV.

Other Biotech IPOs on the Calendar
Company	Ticker	Description	Offer Date	Stage of Lead Candidate	Deal Size
Celladon	CLDN	Gene therapy for systolic heart failure	1/30*	Phase 2a complete	$44
Genocea	GNCA	Vaccines for infectious diseases	2/5	Phase 1/2a	$72
Eleven Biotherapeutics	EBIO	Protein therapeutics for eye diseases	2/6	Phase 2b complete	$60
Revance Therapeutics	RVNC	Enhanced Botox formulations	2/6	Phase 3	$75
Argos	ARGS	Immunotherapy for cancer & HIV	2/7	Phase 3	$60
NephroGenex	NRX	Treatments for kidney disease	2/7	Phase 3	$40

Priced upsized deal at $8 and closed up 2% on its first day of trading.

The torrent of biotech deals on the calendar will test investor appetite for these high-risk companies. In addition to the biotech IPOs that launched, six more have filed this month, meaning that more than one in five companies in the IPO pipeline (22 out of 107) is a biotech. It is impossible to say whether the rest of 2014 will sustain these levels, but one thing is certain: like a shot in the arm, biotechs are back!

Source: Biotech Boomlet Set To Smash IPO Record For Two-Week Period

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