G. Steven Burrill
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It hasn't been an easy time for life-sciences companies seeking to go public. Companies have had to wait patiently to find
market opportunities and often have had to lower their expectations about how investors value their companies. Despite the
challenges, drugmakers that have gone public in recent years are beating both the general market and other initial public
offerings (IPOs) overall.
Therapeutics companies that have gone public since 2011 are up 27.1% as of the end of August 2012, outperforming the average
8.6% return for US IPOs during that time and beating both the Dow Jones Industrial Average (up 13.1%) and the Nasdaq Composite
Average (up 15.6%) for the same period. The performance of these IPOs may come as a surprise given the difficult environment
companies in the sector have faced for completing offerings.
The performance of therapeutics IPOs has been bolstered by a handful of companies, led by the 159.4% rise through the end
of August 2012 in shares of Pacira Pharmaceuticals from its public market debut in February 2011, and the 145.6% rise in shares
of Supernus Pharmaceuticals from its April 2012 IPO during that same period.
Pacira has been rising since its April 2012 launch of Expareo, a nonopiate, postsurgical pain killer. Supernus, a specialty
pharmaceutical company focused on central nervous system disorders, has risen on news of tentative FDA approval of Trokendi
XR, its once-daily extended-release formulation of the anticonvulsant topiramate.
In both cases, fundamental developments drove stock performance as these companies advanced towards new product revenue. The
lesson here is that Wall Street will respond positively to the sector when a company makes progress to justify it. But these
IPOs share another notable feature. Pacira and Supernus both took significant cuts to the target price of their offerings
and raised considerably less than they had set out to raise. Pacira sold its shares at 53.3% below its initial target and
Supernus sold its shares at 61.5% below its target. Overall, both companies downsized their offerings, each raising about
38% less than they had initially set out to raise.
Table I: Initial public offering (IPO) performance by sector.
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The cut in target price that companies have been willing to take to get their deals done has been one indicator of performance.
As a group, the IPOs that came in at 50% or more below their target range were the best performing group, while those deals
that sold above their target range were the worst performing group.
Table II: Life-sciences best and worst initial public offerings (IPOs).
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Since 2010, the four life-sciences IPOs that priced above their expected range are down 50.3% while 11 issues that came within
their target range are down 46.5%. By contrast, the 11 issues that initially sold at 50% or more below their target range
are up 20.7%.
When all life-sciences IPOs since 2010 are considered, the picture grows grimmer. As a group, all 44 life-sciences companies
that have gone public since 2010, including therapeutics, tools and technology, medical devices, and industrial and agricultural
biotech deals, are down 18.5% during that period.
That figure compares with an average increase for all US IPOs of 9.4% during the same period. By comparison, the Dow Jones
Industrial Average (up 25.5%) and the Nasdaq Composite Index (up 35.1%) trounced the performance of the IPO group. Life-sciences
companies that went public in 2010 have dragged on the overall performance of the life-sciences IPOs, with companies that
went public that year down 47.6%.
Industrial and agricultural biotech IPOs have been the worst performers, with a 55.6% decline for all deals since 2010. Amyris,
which is using synthetic biology to develop alternatives to petroleum-based specialty chemicals and transportation fuels,
was one of the worst performers among the industrial and agricultural biotech companies, falling 80.5%. The company pulled
back production plans and shifted its strategy in February 2012 after it acknowledged difficulty in scaling its technology
up to commercial scale.
