Sunday 25 September 2016

Pharma IPOs grind to a halt as biotech stock rout rattles investors

Alex Barinka and Caroline Chen

Published 11/10/2015 | 02:30

U.S. Democratic presidential candidate Hillary Clinton speaks during a community forum campaign event at Cornell College in Mt Vernon, Iowa, October 7, 2015. REUTERS/Scott Morgan
U.S. Democratic presidential candidate Hillary Clinton speaks during a community forum campaign event at Cornell College in Mt Vernon, Iowa, October 7, 2015. REUTERS/Scott Morgan

The biotechnology sector's two-and-a-half-year deluge of public market debuts, with dozens of companies raising billions of dollars in funding, has ground to a halt.

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After CytomX Therapeutics priced its initial public offering late on Wednesday, not a single biomedical, drug or therapeutics company is expected to follow suit in the next 30 days. That would make this the slowest month for IPOs for those industries since February 2013, according to Bloomberg data.

The lull follows two of the highest-flying years in at least the past decade and a half. In 2013, a record $7.1bn was raised from 50 biopharmaceutical IPOs that began trading, while the following year's record 81 offerings brought in a total of about $6bn.

Yet a confluence of bad news for the sector has thrown cold water on the market during the tail end of this year, in which $4.6bn has been raised thus far from 48 IPOs.

Democratic presidential candidate Hillary Clinton called for reforms in the drug industry in late September, accusing biotech company Turing Pharmaceuticals AG of "price-gouging" for acquiring a drug and raising its price more than 5,000pc. That has sent the Nasdaq Biotech Index down 14pc.

Turing responded by promising to lower the price - though it hasn't yet announced details of such a move.

Shares in Irish or Irish-linked biotech companies have also been hammered by the market tumble, with Jazz Pharmaceuticals, Prothena, Malin and Alkermes all diving.

Recent high-profile stumbles in trials of biotech drugs have also underscored the riskiness of the drug business. For instance, Tetraphase Pharma's late-stage trial failure of an antibiotic sent its shares down 79pc in a single day last month, wiping out $1.3bn in market value.

"We've had an absolutely fantastic run for the last two years, and we all know it'll end someday," said Jay Lichter, a partner at La Jolla, California-based Avalon Ventures. "That's a risk right now."

The window for biotech IPOs hasn't completely closed under these conditions, though investors are favoring more proven products, according to people familiar with the offering process

Companies whose drugs and therapies are unproven have had less successful public offerings because investors see the stocks as riskier.

Of the six biotech IPOs in the past month, five either slashed the share price marketed to investors before trading or priced below the targeted range, indicating lower-than-expected demand for shares.

Nabriva Therapeutics, Edge Therapeutics and CytomX all priced their IPOs at the lower end of the indicated range.

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