Recent Biotech IPO Analysis
Investor interest in biotechnology companies has been extremely high over the past several years. Previous articles have discussed the increase in biotech FDA approvals and how the biotech sector is creating a large shift in biopharmaceutical research and development. I decided to take a trailing 12 month look at biotechnology companies that went public in the United States. I leveraged online data provided by Nasdaq.com and Iposcoop.com to compile the chart below.
A few caveats, the list below excludes secondary offerings - so there may be some companies that each of you track that are missing. Also, since I used lists provided by the sites, its possible I am missing a few IPOs or have companies that may not technically be biotechs but were included on the lists I imported. All that being said, I think the list below is a pretty good proxy.
A few observations:
62 companies with offerings ranging from $6.4M (Genprex) to $604M (Moderna) raised a total of $6.572B
The average capital raised is $106M per company
The overall portfolio is basically flat at a -0.5% return - since we all invest for long-term results, most of these return are too early to assess. However, I would say its a positive sign that the entire portfolio is flat.
38 (61%) companies are below their initial public offering price - 7 companies have a current price more than 50% less than their initial offering price. Since biotech stocks are risky by nature, this wide deviation is not unexpected.
The chart below shows the trend of capital raised and IPO events over the past 12 months. June 2018 was a popular month with 16 IPOs while Q4 2018 saw a slow down with only 3 combined in November and December. February 2019 was a bounce back month with 8. It will be interesting to see IPO flow in Q2 & Q3 of 2019 - hard to effectively assess as many companies confidentially file.
Investors on the Hunt for Unicorns
Unicorn Defined (Investopedia.com) - A startup company with a value of over $1 billion. Curious as to how many recent biotech unicorns there have been recently? Fortunately, Silicon Valley Bank put out a great annual "Trends in Healthcare Investments and Exits" report. Here is a visual of the "Unicorn" summary:
Pretty impressive group of companies to say the least. I decided to add a little perspective by adding up the sales values of the 2018 M&A unicorns to the total capital raised from our 62 company list above.
Amazing that eight 2018 M&A exits generated $27B more cash than our 62 IPOs while three exits (Juno, Avexis & Impact Biomedicines) each generated a higher return on their own.
A History Lesson
I get asked often if I think the money flowing to biotech will slow down (this is clearly on the mind of most CRO CEOs as a slowdown would reduce the amount of overall R&D). Below is a chart created by Ernst and Young that I found in a great Forbes.com article written by Healthcare contributor, Bruce Booth. The blue line represents the number of public biotechs and the grey line the number of total public companies.
A few observations:
From 1990 to 2007, the number of public biotechs more than doubled while total public companies declined by roughly 38%. I am assuming this trend includes the rise and fall of the dot.coms.
From 2007 to 2012, biotech IPOs declined roughly 13% (over industry funding was down as well). Makes perfect sense as this timeline coincides with the financial meltdown period. Total public companies continued to decline as well.
From 2012 until present, we've seen dramatic growth public biotechs - appears to be close to 40%. Interestingly enough, we haven't seen any growth in total publicly traded companies.
Why the spike in biotech IPOs? Mr. Booth provides the answer: "The lack of late stage capital at this scale, willing to support another chapter as a highly valued private company, helps crystalize the IPO benefits to a biotech: it’s really the only way to access significant amounts of growth stage capital in the sector." Biotech companies seen to have made the decision that the access to capital outweighs the extra scrutiny and governance required when going public.
Will current biotech funding continue to increase into perpetuity? No, economic expansion and contraction tends to be cyclical (we can't forget the dot.com era or the real estate meltdown). However, I do believe the biotech sector will continue to receive significant investment interest for the following reasons:
The world has an insatiable interest in developing the best technologies to improve healthcare
Researchers have a genuine intellectual interest in understanding how the body works and solving complex problems (the curiosity and tenacity is in their DNA)
Advancements in research is rapidly changing thereby creating the potential for both pharmaceutical and financial gains for all involved
The rapid advancements in science can be overwhelming, but fortunately the potential is also breathtaking.
One Last Item
I received a lot of great feedback from the last book I posted ("Irresistible: The Rise of Addictive Technology & The Business of Keeping Us Hooked"), I thought I'd share another one. "The Breakthrough: Immunotherapy and the Race to Cure Cancer" by Charles Graeber is a fantastic read for anyone interested in learning more about immunotherapy. Mr. Graeber does a great job of providing the history around immunotherapy, recent developments and some uplifting and heartbreaking stories along the way. Mr. Graeber's writing style makes it easy for the reader to understand a complex topic. I highly recommend this book - its a great read.
Jason Monteleone is CEO of Clinipace & President at Pivotal Financial Consulting, LLC. Clinipace is a global mid-size CRO with operations in the Americas, Europe and Asia-Pac serving small and mid-size pharma and biotech sponsors. Pivotal provides Divestiture Assistance, Acquisition Advisory Services and Strategic Planning to the Pharmaceutical Outsourcing Industry. Jason can be reached at firstname.lastname@example.org, email@example.com. Follow me on Twitter @JMPivotal. Sign up for Jason's latest blogs and updates at my www.pivotalfinancialconsulting.com.