By almost any measure, 2013 has been a record-breaking year
for biotech IPOs. The 33 biotech IPOs completed and the $2.5
billion raised are more than the totals from the previous five
years combined and far exceed the levels reached at the height of
the tech bubble in 2000, when 26 companies raised $1.9 billion.
So far this year, six biotechs have gained more than 50% on their
first day of trading, and one of every three deals has had a 20%
or greater first-day pop. In June, we declared that
biotech IPOs were back
and noted the positive influences of promising results from
clinical trials, accelerated FDA approvals and increased appetite
for risk. We also surmised that an influx of generalist investors
was contributing to IPO performance.
But as the year comes to a close, enthusiasm for the sector has
vanished. Six of eight scheduled biotech IPOs have been postponed
in November, and the average total return for the year's deals,
which was 55% on October 1, has plummeted to 14%. Interest in
riskier, early-stage biotech deals has particularly fallen off.
More than half of the year's biotech IPOs were companies whose
lead drug candidates had yet to complete Phase 2 trials (often
the first involving the targeted patients). The early-stage
companies that had many of the best first-day returns earlier in
the year are now among the worst performers.
2013 biotech IPO returns by stage of
Phase of lead drug candidate
Total return as of 11/22
|Phase 3 completed
*Agios Pharmaceuticals (
**Omthera (OMTH) and Relypsa (
). Omthera was acquired by AstraZeneca less than 60 days after
As returns climbed this year, valuations crept up as well. From
2010 to 2012, only six of 28 biotech companies came public with
market caps above $300 million; in 2013, nearly half have
exceeded this level. These relatively expensive companies
generally had much higher first-day pops, but their total returns
are now worse on average than those of companies with less
aggressive IPO valuations.
2013 biotech IPO returns by market cap at
Market cap at IPO ($ in mil)
Over the last several years, it was normal to see a fair share of
biotechs adjust valuations downward in an effort to tap the
public markets. The strong pricings of 2013 biotechs earlier in
the year may have reflected new promise in the sector after
several discouraging years, and it may have been driven in part
by momentum and a growing contribution from non-traditional
biotech investors. As we close out 2013, it will be interesting
to see if the 2013 biotech breakout was a merely an anomaly or if
the recent about-face in sentiment indicates a change back to the
norm that existed for much of the past decade.