IPO Market Heats Up for Life-Sciences Companies

Biotech companies raise most money in 13 years.
Jul 01, 2013
Volume 26, Issue 7

G. Steven Burrill
When Epizyme debuted in its initial public offering at the end of May 2013, the development-stage biotech company, which is developing personalized cancer treatments, sold its shares at $15—the top of its target range—and finished its first day of trading at $22.99, more than a 50% increase. Within its first week, shares traded above $30.

Including the underwriters' exercise of their overallotment, Epizyme raised a total of $88.7 million, more than the $60.2 million it was expected to raise had the offering been completed at the mid-point of its target range. It sold 5.9 million shares, a million more shares than the company had planned to sell.

Epizyme's performance was a fitting finish to a month that saw a total of eight life sciences IPOs on US exchanges, the busiest month for initial public offerings in the sector since August 2000 when 16 issues debuted, according to a Burrill & Company analysis of S&P Capital IQ data. The eight life sciences IPOs in May nearly equaled the number of IPOs completed during the preceding four months of 2013. At the same time, the queue of life-sciences companies filing to go public continues to grow, reaching 17 at the end of May.

The burst of activity is leading to familiar, if outdated, talk in both the trade and popular press of an "open window" for biotech IPOs. Renewed interest in life-sciences IPOs is certainly welcome. Recent activity has created the best environment seen for biotech IPOs in a long time, but it nevertheless remains a demanding market for companies seeking access to the public markets. Biotech companies often need to price deals below their targets to get them done and venture investors routinely must commit to purchasing sizeable portions of the IPO.

There are several factors that are driving the improving environment for life-sciences IPOs. Public market biotech stocks have continued to show strength, outperforming the general market. Leading biotechs Amgen, Biogen Idec, Gilead, and Celgene each closed at record highs at the end of the first quarter of 2013. Also pushing these stocks into new territory have been significant developments, such as the regulatory approval of Biogen's new oral multiple sclerosis drug, and growing expectations for Gilead's experimental hepatitis C drug.

Table I: Performance of 2013 US IPOs.
The JOBS Act appears to have been a contributor as well. The legislation, passed in April 2012, eases regulatory demands on emerging-growth companies seeking to raise capital through initial public offerings, allows emerging-growth companies to file confidentially with the US Securities and Exchange Commission, and test the waters with investors to gauge their interest. Most of the life-sciences companies to go public this year have done so under the provisions of the JOBS Act.

Last, aftermarket performance of biotech IPOs has started to attract the attention of investors and warmed them to the prospects of companies in the sector. The performance of the class of 2013 has been solid, with the new issues edging out the major indices. Through the end of May, newly public companies are up an average of 20.9%. Of the 17 IPOs during the first five months of 2013, 14 are trading above their IPO price and four are trading below.

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