A hot market for biotech IPOs is about to get hotter with the
upcoming debut of NantKwest, a developer of cancer therapies that
could set a record for market valuation.
) will be the 51st initial public offering in the health care
field this year if it prices Monday evening as planned. That's
more than triple the next most active sectors, technology and
finance, with 15 IPOs each. Health care also had the most IPOs
last year, at 102.
"We've had a great extended IPO window of opportunity for
these companies to get financing from the public markets," said
David Miller, portfolio manager at Alpine BioVentures, which
invests in public and early-stage private companies. "Companies
are going from their first human trials to FDA drug approval
faster than ever," he said. "Part of that is the FDA is more
understanding and companies are also smarter about drug
NantKwest, which will adopt the ticker symbol NK, plans to
raise $151 million by offering 7 million shares at a price range
of 20 to 23. At the midpoint it would have a fully diluted market
value of $2.2 billion. That would top a record set by biotechJuno
), with a market valuation of $2.16 billion before its trading
debut on its Dec. 19 IPO, according to Renaissance Capital,
manager of the Renaissance IPO exchange traded fund.
An Industry Of M&A
There are several reasons for the surge in health care initial
public offerings. Helping fan the flames are a record number of
mergers and acquisitions, including some blockbuster deals.
These include the $8.4 billion that big-cap biotechAlexion
) paid to acquire Synageva BioPharma in a deal that closed last
month. Synageva came public in December 2011. Another was the
$3.2 billion thatTeva Pharmaceutical (
) paid to acquire Auspex Pharmaceuticals, in a May pact. Auspex
came public in February 2014. Another big deal was the $7.2
billion thatCelgene (
) this month announced it would pay to acquireReceptos (RCPT).
Receptos came public in May 2013.
Another reason is the strong flow of money coming from venture
capital firms, as well as IPOs and follow-on offerings. Analysts
also say that biotech companies are innovating at a pace never
"We're now in a golden age of biotechnology," said Paul Yook,
portfolio manager of theBioShares Biotechnology Products Fund
(BBP) andBiotechnology Clinical Trials Fund (BBC). "The capital
is widely available and a record number of drugs are being
The venture capital industry pumped $2.3 billion into biotech
companies in the second quarter, according to the MoneyTree
Report by the National Venture Capital Association and
PricewaterhouseCoopers. That's up 32% from the prior quarter and
the largest amount since the group began keeping records 10 years
The largest funding round for a biotech company in Q2 was $217
million received by Denali Therapeutics. That was followed
byAduro Biotech (ADRO), which received $200 million, while
Adaptive Biotechnologies got $195 million. Aduro came public on
April 15, raising $119 million. The stock priced at 17 and popped
147% on its first day of trading. It now trades near 27.
"There have been a lot of takeovers with tremendous premiums
that are enabling some of these biotech companies with good
venture capital backing and good insider buying to be the next
great wonder," said Scott Sweet, senior managing partner at
IPOboutique.com, a research firm.
Funding Follows High Returns
Over the past decade, emerging therapeutic companies in the
U.S. have received $39 billion in venture capital. They received
another $13 billion in proceeds from IPOs and $41 billion more
from follow-on offerings, according to Biotechnology Industry
Organization, the largest biotech industry trade group.
"The money is coming in because the returns have been strong
and outlook is good," said Yook.
The biotech sector will get another blast of attention from
the NantKwest IPO. IPO Boutique said channel checks show that
investor demand for NantKwest is high, with the deal expected to
be multiple times oversubscribed.
NantKwest has several key ingredients that make it a high
profile IPO. Among them is that an affiliate of drug giant
Celgene is an existing stockholder. It plans to purchase $17
million in NantKwest shares in a private placement concurrent
with the IPO. Another existing stockholder is mutual fund giant
Franklin Templeton, which intends to buy $45 million worth of
Perhaps the biggest attraction to the attention-getting IPO is
billionaire Patrick Soon-Shiong, chairman and CEO, and a
physician, surgeon and scientist. He plans to invest $10 million
in the IPO. Soon-Shiong previously acquired a controlling stake
in the company last December, when it was known as Conkwest, for
The Soon-Shiong Connection
Soon-Shiong has a long track record of success. In 2008 he
sold a generic-drug company that he controlled, American
Pharmaceutical Partners, to German health care company Fresenius
for $5.7 billion.
He invented and developed Abraxane, which was approved by the
Food and Drug Administration to treat metastatic breast cancer in
2005, lung cancer in 2012 and pancreatic cancer in 2013. Celgene
acquired the drug in its $2.9 billion buy of Abraxis BioScience
NantKwest is also drawing attention for its area of work. It's
in the hot field of immunotherapy, which deploys the patient's
own immune system to fight cancer.
"We are a pioneering clinical-stage immunotherapy company
focused on harnessing the power of the innate immune system by
using the natural killer cell to treat cancer, infectious
diseases and inflammatory diseases," NantKwest said in its IPO
prospectus. Natural killer cells are also called NK cells, hence
the NK stock symbol.
"What's going on in immunotherapy is absolutely
revolutionary," said Miller.
Juno Therapeutics was perhaps the first high-profile IPO in
the immunotherapy field. It priced at 24 and raised $265 million.
Juno currently trades near 52. Another isKite Pharma (KITE),
which is up 300% from its June 2014 IPO price of 17. Kite now
trades near 68.
The drug development field is also full of risk. Historically,
said Miller, for every 100 drugs that enter the oncology
pipeline, just eight get FDA approval.
The stock of big-cap biotechBiogen (BIIB) plunged on Friday as
the company slashed its profit outlook due to slowing sales of a
multiple sclerosis drug and reported failure in a clinical trial
for its Alzheimer's disease drug.