Groupon raked in so much cash through its initial public offering last week that it could buy the entire class of life sciences companies that have gone public in 2011.
For those of you who aren’t following the Groupon melodrama, the Chicago-based online daily deals site raised $700 million last week in its IPO after overcoming serious questions about its accounting practices. Groupon shrugged that off and saw its stock (NASDAQ: GRPN) boom 31 percent on the first day of trading. TV news commentators cheered, just like when social networking site LinkedIn (NYSE: LKND) went public in May.
The biotech IPO market, by comparison, has been about as exciting as the average Seattle Mariners game was this year.
Not everybody thought it would be this dull. Heading into 2011, market prognosticator Steve Burrill predicted there would be at least 25 biotech IPOs this year in the U.S. The final tally will be nowhere close to that. Renaissance Capital of Greenwich, CT, says there have been 13 healthcare IPOs this year, compared with 37 from the tech industry. Even by reaching for the loosest definition possible of the “life sciences” industry, there have been 16 life sciences IPOs so far this year, as tallied in August by The Burrill Report. But if you get rid of specialty chemical/biofuel companies, and you whittle out a Tibetan medicine company and a health IT player, that brings the group down to 10 true life sciences IPOs by my count. Six are drug developers, leaving a couple of medical device companies, a diagnostics company, and an instrument maker.
Here’s a quick rundown of the life sciences IPO class of 2011 that I put together. Three have gained value this year, two are basically treading water, and five have declined. The grand total of IPO money that went to these 10 companies is a paltry $640 million—less than a single online daily deals site raised last week. Just as worrisome, I’m almost certain that when scientific eyes look at this list, they glaze over with boredom.
|Company||Location||Industry||Ticker||IPO price||Closing Price Nov. 4||% change||Amt Raised|
|Sagent Pharmaceuticals||Schaumburg, IL||Drugs||SGNT||$16||$24.01||50%||$92m|
|Pacira Pharmaceuticals||Parsippany, NJ||Drugs||PCRX||$7||$7.71||10%||$42m|
|Tranzyme Pharmaceuticals||Durham, NC||Drugs||TZYM||$4||$3.15||-21%||$48m|
|Endocyte||W. Lafayette, IN||Drugs||ECYT||$6||$9.52||58%||$75m|
|Horizon Pharmaceuticals||Northbrook, IL||Drugs||HZNP||$9||$8.80||-2.2%||$49.5m|
|AcelRx Pharmaceuticals||Redwood City, CA||Drugs||ACRX||$5||$2.90||-42%||$40m|
|Fluidigm||S. San Francisco, CA||Tools||FLDM||$13.50||$13.65||1.1%||$75m|
|BG Medicine||Waltham, MA||Diagnostics||BGMD||$7||$4.89||-30.1%||$35m|
|Kips Bay Medical||Minneapolis, MN||Devices||KIPS||$8||$1.60||-80%||$16.5m|
It’s a sad state of affairs today that some daily deals website, which produces nothing of lasting value and will probably end up the poster child of another tech bubble gone bad, can generate so much attention and actual money.
Don’t get me wrong, I don’t think investors should just start taking fliers on unproven biotech companies. The vast majority of people who try that would surely get burned, like I’m guessing most people will get burned by Groupon.
This dynamic isn’t going to change anytime soon. The biotech VC world is in crisis, pharma companies are cutting their R&D capabilities, and the federal government is contemplating budget cuts that would put a dent in basic academic research. Hardly anybody, other than a few focused philanthropies, seems to be stepping up to invest in the risky, messy business of biomedical discovery that keeps the whole industry moving forward. Certainly IPO investors have made clear the past few years they want no part of that kind of risk.
Ironically, this same abundance of caution is coming during the same year of some major biotech home runs. There has been a string of outstanding innovation this year in life sciences from companies like Plexxikon (Zelboraf), Pfizer (Xalkori), Vertex Pharmaceuticals (Incivek and ivacaftor), Medivation (MDV3100), Human Genome Sciences (Benlysta), Onyx Pharmaceuticals (carfilzomib and regorafenib), Exelixis (cabozantinib), Optimer Pharmaceuticals (Dificid), Genentech (T-DM1), and Seattle Genetics (Adcetris).
There are a few brave souls seeking to test the IPO market. One company, Boulder, CO-based Clovis Oncology, is on the schedule to go public next week at $13 to $15 a share. The only thing that gives this company a realistic shot at an IPO is the fact that its management team previously ran Pharmion, which made investors a lot of money when it was acquired by Celgene in 2007 for $2.9 billion. I’d say that one has a decent chance to raise the most money of any biotech company in 2011.
But one company isn’t enough to make the market work well for biotech. An even better test of the market will be with Cambridge, MA-based Verastem. This company, just 15 months old and with just two rounds of venture capital to its name, surprised just about everybody last week when it filed to go public with a $50 million offering.
Verastem looks like something from the early ’80s or early ’90s biotech waves. It’s got big-name scientific founders (Bob Weinberg and Eric Lander of MIT), a compelling technology idea for attacking cancer stem cells, and a CEO who made people a lot of money by taking his last company public and selling it to GlaxoSmithKline for more than $700 million (Christoph Westphal). Verastem has a decent amount of cash, $41 million, but what it doesn’t have is an iota of proof from any drug candidates that have been tested in human beings. This is truly an audacious offering. As I said on Twitter after filing the first news story: “I can’t see how Verastem pulls this off. If they do, what will a quarterly report look like? We shrank rat tumors?”
There was once a time when companies with little more evidence to go on than Verastem were able to go public, and keep raising money for years on little more than hype and hope. It’s possible that investors could get psyched up again about cutting-edge science, but I would be shocked if they do. I was really surprised a couple weeks ago when Matt Perry, a portfolio manager with Biotechnology Value Fund in San Francisco, told people at the BIO Investor Forum that he likes some of the groundbreaking scientific ventures that have gotten VC backing the last few years, and he thinks the public markets are hungry for this kind of company again.
Nothing I’ve seen so far in 2011 really suggests that public investors have gotten the appetite back for innovative biotechs. I hope Perry is right about 2012, because if he’s not, we’ll probably still be throwing funny money at companies like Groupon, and wondering 10 years from now why there’s so little innovation in healthcare.
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