The Biotech IPO Window: Party Like It’s 1999

According to Burrill & Company, July had the busiest week of biotech IPO activity ever, continuing a trend of heavy fundraising during 2013 so far:

In all, 29 life sciences companies raised a total of $5 billion on U.S. exchanges through the first seven  months of 2013. That compares to 11 companies raising $771 million during the same period a year ago. Even excluding the $2.6 billion IPO of Pfizer’s animal health spin-out Zoetis, the sector is seeing its most robust period for IPOs since 2000. A total of 24 life sciences companies are in registration in the United States with four companies added to the IPO queue in July.

Yet as DrugBaron points out, all is not well:

The trigger for many, if not all, of these companies to go public has not been new data, or any material change in the value of their assets, or indeed anything specific about the company at all.  Instead, it’s simply the opening of the window…Eventually – and if the current headlong dash to join the IPO queue is sustained, then soon – supply will exceed demand, and since the prices had little to do with the actual underlying enterprise value of the companies prices will drop precipitously. When that happens, and investors are burned, the binary switch in their brains will flip back to the ‘off’ position and the window will slam shut for a further indefinite period.

But, as Burrill points out (somewhat contradictorily):

Today, early-stage cancer and rare disease therapeutics companies are now finding a receptive environment, even when they are years away from having products or sales.

In other words, we are back to 1999 when genomics companies were raising bucketloads of cash based on limited Preclinical or very early Phase I data.

How did those companies fare?

As Luke Timmerman points out:

This IPO party won’t last long, probably no more than a few months. There are only so many good private companies worthy of graduating to the public markets. If the past is any indication (remember the genomics craze of 2000?), there will be a hangover when it ends. Quite a few investors, big and small, will lose money and lose interest.

As we learned in 1999 and beyond, it’s going to be a bumpy ride for many of these new investors. 

And, what does this say about companies who tried to raise capital in the public markets, but couldn’t?

Related articles

• Three More Biotechs Go Public as Surging IPO Market Lifts Life-Sciences VCs
• The Biotech IPO Phenomenon of 2013: Enjoy It While It Lasts