Biotech IPOs Start to Show Some Modest Signs of Life

4/30/12Follow @xconomy

[Updated: 2:10 pm ET, 5/2/12] Something feels wrong about putting the words “biotech” and “IPO” together in a headline. This market has been lifeless for so long that few investors even play the game anymore. Biotech entrepreneurs I talk to seem to feel a bit sheepish about saying they are considering an IPO, probably because they know most people will just roll their eyes.

But a strange thing has started to happen in 2012. A few biotech IPOs have been modestly successful. And even though biotech executives could be excused for missing the news that 2012 is shaping up to be the biggest IPO year since 2000, there are signs that biotech IPOs have a fighting chance.

This feels odd to say, since I’ve been dismissive of biotech IPOs for some time. I wrote back in January that even though people were predicting the return of biotech IPOs, “it’s nothing more than wishful thinking.”

There is plenty of reason for pessimism. Back in 2010, the blue chip offering from Cambridge, MA-based Ironwood Pharmaceuticals (NASDAQ: IRWD) was supposed to open the proverbial “window” for others. It didn’t. The next year, one of the bellwether private biotechs—Berkeley, CA-based Plexxikon—looked at the IPO options, and discovered that Big Pharma valued its melanoma drug far more than Wall Street did. Before the year was done, LinkedIn and Groupon made IPO debuts that dwarfed the entire biotech industry IPO class of that year.

It would be wrong to say that things have fundamentally changed in a positive way for biotech. Technology has produced 21 IPOs already this year, while healthcare has cranked out just four, according to Renaissance Capital’s IPO Home. But those four biotech companies—Cambridge, MA-based Merrimack Pharmaceuticals (NASDAQ: MACK), Mountain View, CA-based ChemoCentryx (NASDAQ: CCXI), Chapel Hill, NC-based Cempra (NASDAQ: CEMP), and Cambridge, MA-based Verastem (NASDAQ: VSTM) have all held their own in their early days of trading as public stocks this year. See their performance in the chart below:

Company Name Location IPO Price Last Price %Change Market Cap
Merrimack Pharma (MACK) Cambridge, MA $7 $7.26 +4 $571 million
ChemoCentryx (CCXI) Mountain View, CA $10 $16.62 +66 $603 million
Cempra (CEMP) Chapel Hill, NC $6 $6.81 +14 $142 million
Verastem (VSTM) Cambridge, MA $10 $9.90 -1 $208 million

This performance, while hardly anything to scream about from the rooftops, has inspired a handful of private biotech companies. It could just be gamesmanship by those who are hoping that by filing an IPO prospectus, they will be able to show a prospective acquirer that they are able to stand on their own two feet. It’s also possible that some of these companies foresee a long-term future as publicly traded independent companies, who get by with help from Big Pharma partners here and there. Here is the list of private biotech companies with active S-1 filings in the IPO queue that I was able to find. If you know of any companies in the queue that I overlooked, please shoot me a note at ltimmerman@xconomy.com. (Corrected, 2:10 pm ET, 5/2/12, to drop Horizon Pharma, because its S-1 financing document on file with regulators isn’t for an IPO transaction, and updated to include Stemline Therapeutics–LT)

Company Name Location Date of S-1 filing Amount Seeking Investment bankers
Stemline Therapeutics (STML) New York April 2012 $50 million Oppenheimer & Co., JMP Securities
Hyperion Therapeutics (HPTX) South San Francisco April 2012 $58 million Leerink Swann, Cowen & Co., Needham & Co.
Radius Health (RDUS) Cambridge, MA February 2012 $86 million UBS, Leerink Swann, Cowen & Co., Rodman & Renshaw
Rib-X Pharmaceuticals (RIBX) New Haven, CT November 2011 $93 million Deutsche Bank, William Blair, Lazard, Needham & Co.
Durata Therapeutics (DRTX) Morristown, NJ March 2012 $86 million BofA Merrill Lynch, Credit Suisse, RBC Capital Markets, Wedbush PacGrow
Supernus Pharmaceuticals (SUPN) Rockville, MD December 2010 $55 million Citigroup, Piper Jaffray, Cowen & Co., Stifel Nicolaus
Tesaro (TSRO) Waltham, MA March 2012 $86 million Citigroup, Morgan Stanley, Leerink Swann, BMO Capital Markets, Baird

So if there are four biotech IPOs so far this year, and seven in the queue that could reasonably be expected to go public over the next 3-4 months, that means there could be 11 IPOs done before entering the fall. There were only 11 total biotech IPOs last year, so it’s possible that this year could end up quite a bit ahead of last year. [Updated 10:35 am ET to include two more IPO candidates, Durata and Tesaro--LT.]

Still, this isn’t exactly a cause for celebration. “I’d say there are some rumblings of positivity,” says Bob Nelsen, a managing director at Arch Venture Partners in Seattle. He knows how rough the IPO market can be, as one of his biotech portfolio companies with a lot of actual revenue (Ikaria) withdrew an IPO application in November 2010.

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