Catalyst - Winter 2013 - IPO Window Wide Open as Biotech Stocks Sizzle!


In thinking about the 2013 biotech IPO whirlwind… what should people really be thinking now?

Work in biotech? Are you familiar with the public markets? Heck, ever heard of the FDA? You already know that the life sciences IPO marketplace is more than just "hot." As IPO lawyer Andy Gilbert of DLA Piper says: "It's crankin.'"

But you know all that. You waited patiently. Finally, in 2013, after an IPO drought -- no new opportunities to publicly invest in promising drugs, life-saving therapies and miraculous medical devices -- the flood gates flew open.

A year ago, it would have been difficult, and maybe even sad, to put together a "Top 10" year-to-date list of biotech IPOs (there were only 11). As of Nov. 1, 2013, a whopping 39 biotech companies hit the public markets to an incredible reception raising capital in numbers – a total of $3 billion to date.

The big question, or questions, on everyone's mind (sometimes just thought about but never uttered – Murphy's Law and all…) are "When will the biotech IPO window close," or – for those glass-half-full types, "How long will the window stay open?"

No one knows. Period.

However, Catalyst wanted to know what people do know about the current market – beyond the obvious. So, with that in mind, we approached several industry thought leaders and said: "Tell me something we don't know." 

Darren Heffernan"Many people underestimate the demands on the finance and accounting team once a company is public. It pays to be prepared – companies should start building out the teams and systems 18 months before filing, with a goal of operating internally as a public company for three months before an IPO. It's crucial to get the "record-to-report" process right. Each of these processes should be optimized to promote collaboration and coordination among the many people involved to ultimately accelerate the quarterly close and better provide the management team with information needed to shape strategy and planning." 

Darren Heffernan
EVP and CFO at Trintech 

Mike Bunker"The IPO market for biotechnology has been nothing short of amazing. I believe there is great investor interest in the space with evidence to date of all IPOs in biotechnology over the past year being up at least 50 percent from their IPO price. This bullish sentiment should remain positive over the coming year, provided there aren't any macroeconomic pull backs along the way. I anticipate biotechs coast to coast will benefit, and I also expect to see more coastal VCs continuing to take interest in biotech's in Cleveland and other areas of the Midwest due to the capital efficiencies these companies can realize. That capital efficiency helps to better position companies for success pre- and post-IPO." 

Mike Bunker
managing director, Early Stage Partners-Life Sciences 

Alan S. Roemer"Two things. First, the super-hot biotech IPO market is a largely U.S.-centric phenomenon. While there are transactions getting done in Europe and elsewhere, the biotech IPO market is not a global phenomenon. Second, looking forward, it will be very interesting to see how the biotech IPO class of 2013 fares in 2014 and 2015. There will be a lot of watchful eyes looking to see if there are sufficient catalysts to support these newly-public companies. The pressure from lockup expiries, profit-taking, short interest and low liquidity could cause valuations to be dramatically reset." 

Alan S. Roemer
managing director, The Trout Group LLC 

Christopher J.P. Velis"A company that is "ready" to take advantage of this market is one that is assured that they are going to get analyst coverage, investor interest and trading volume in good times and bad times. If the company is a long way from revenue, access to clinical data or in an early stage of development-- they will end up trading on pink sheets and at a depressed valuation because the markets are fickle." 

Christopher J.P. Velis
chief executive officer and chairman, MedCap Advisors 

Dr. Paul F. Agris"The current pharmaceutical IPO market expects a new company to have demonstrated a successful phase 1 clinical trial on a new drug. All the better if it is a new class of therapeutic. This IPO market has become considerably more conservative over the last decade. This is also true of VCs and angels. Unfortunately, this has placed the burden of early phase drug discovery on the academic community and NIH. In contrast, the biotech, instrumentation, medical device markets are less conservative because the product feasibility and markets are readily demonstrated at an early stage in development." 

Dr. Paul F. Agris
Interim CEO, CSO at Sirga Advanced Biopharma, Inc. and also director of UAlbany's RNA Institute 

Dr. Hubert Zajicek"One thing striking about the current life science IPO market is the paucity of medical device IPOs. While medical device companies have usually lagged biotech in number of IPOs, the disparity has not been as big as it is this year. Historically, the ratio ranged from one medical device IPO for every five biopharma IPOs to one medical device IPO for every two biopharma IPOs in some years…One of the reasons is that biopharma companies are generally perceived as multi-billion dollar potential while medical device companies commonly more as multi-hundreds-of-million dollar potential. Another damper on devices is the looming medical device tax and an increased perception of medical devices as becoming more scrutinized by the FDA with a higher risk profile than in previous years." 

Dr. Hubert Zajicek
executive director and co-founder, Health Wildcatters 

Nicole Vitullo"A key ingredient to a successful IPO is having a management team that is public market savvy. This is not an environment where it is easy to learn on the job. One key reason why the Esperion IPO was so successful was the team of Roger Newton and Tim Mayleben, both were instrumental to the success of the first iteration of Esperion (sold to Pzifer in 2004 for $1.4 billion). For any companies contemplating an IPO, one of the easiest things to do is upgrade your team. Once you are a public company, it is all about delivering on your milestones; tell them what you are going to do, then do it." 

Nicole Vitullo
partner, Domain Associates 

Andrew Gilbert"Five years ago, any company going public was far later stage and closer to an approved drug. Now, we are seeing much earlier-stage companies who are able to raise money up front that will fund Stage 3 trials. This is because the VC firms that have funded them to date don't want to fund Stage 3; they just don't want to bear that kind of risk. Luckily, companies with great stories are able to turn to the responsive public markets to meet future milestones. The reason is: sustainability. Later stage companies have a good quality asset backed by good science, a solid management team, more products in the pipeline and investor relations in place." 

Andrew Gilbert
co managing partner, DLA Piper, Florham Park office 

EisnerAmper's Catalyst: Winter 2013

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