Although biotech's uptick so far is encouraging, investors still need to be cautious in their optimism. The market no longer embraces risk and the investors are not ready to put their faith in venture-backed biotechnology companies in their desire to go public.It was hoped that Ironwood Pharmaceuticals' initial public offering (IPO) debut in February would pave the way for several other aspirants to follow. However, the Ironwood IPO was tough to get out. The amount raised was below the prior private round pricing, and the investment bankers had to buy 50% of the offering to get it done. Companies on the IPO runway are now having second thoughts about their IPOs because of the uncertainty of reaching their intended share offering prices. California biotech Anthera Pharmaceuticals, for example, which planned to go public late February, delayed its offering until the beginning of March. It finally sold 6 million shares at $7 each, after cutting the size of its deal by 39%. Anthera had originally planned to sell 4.61 million shares at $13–15 each to finance the development of three drugs currently in clinical trials.
I think the message from Wall Street is that biotech IPO deals will still be tough to do. The equity markets in general are in tough shape right now. If you are on the "buyside," it makes sense to be working with companies already public. This avoids the immediate risk of a downside event if you participate in an IPO offering.
In Burril & Company's shortly to be released 24th annual report on the industry, Biotech 2010-Life Sciences: Adapting for Success, we predict that at least 15 biotech IPOs will be completed in 2010, but supply will overwhelm demand, and the markets will be very selective—a situation we currently are witnessing now.
We also predict that the worldwide financing environment in 2010 will be more robust than 2009, but choppy and selective at times. This environment favors risk-mitigated companies rather than earlier-stage development companies. Capital markets in the US and globally will continue to strengthen, building on a return of investor confidence. Much of the global economic recovery so far has been driven by stimulus funding, and as a result, real economic growth will remain uncertain. The large universe of small public companies and private companies looking for venture capital will still face challenges as they try to find ways to extend their runway and stretch out their remaining funds. We can expect to see further consolidation in 2010, although at a slower pace than we saw in 2009.
Ironwood Pharmaceuticals priced its IPO at $11.25 per share at the beginning of February, less than the $14–16 the company had hoped for. The company raised $203 million by completing its IPO and exercising an over-allotment option, and will use the cash to develop and commercialize linaclotide being evaluated in a Phase 3 program.
Anthera, the second biotech IPO of the year, has an anti-inflammatory drug known as A-002 in the last-stage of clinical testing.
Late February, two biotech companies—AVEO Pharmaceuticals and Trius Therapeutics—set the terms of their offerings. AVEO, which is developing novel cancer therapeutics, announced plans to raise $98 million by offering 7 million shares in the price range of $13–15. Trius said it plans to sell 6 million shares to investors at a price range of $12–14 to raise $84 million.
Also on the biotech IPO runway are companies including Alimera Sciences, Aldagen, AutoGenomics, Prometheus Laboratories, Rules Based Medicine, and Tengion.
G. Steven Burrill is chief executive officer at Burrill & Company, San Francisco, CA, 415.591.5400, [email protected]