SOURCE: Burrill & Company

Burrill & Company

September 04, 2012 08:45 ET

Recent Therapeutics IPOs Outperform Market, but Life Sciences Offerings a Mixed Bag, Burrill & Company Reports

Deals From 2010 Weigh Down Overall Performance of Initial Public Offerings in Recent Years

SAN FRANCISCO, CA--(Marketwire - Sep 4, 2012) - Therapeutics companies that have gone public since 2011 are up 27.1 percent as of the end of August, outperforming the average 8.6 percent return for U.S. IPOs during that time and beating both the Dow Jones Industrial Average (up 13.1) and the Nasdaq Composite Average (up 15.6) for the same period. The performance of these IPOs may come as a surprise given the difficult environment companies in the sector have faced for completing offerings.

The performance of therapeutics IPOs has been bolstered by the strong performance of a handful of companies led by the 159.4 percent rise in shares of Pacira Pharmaceuticals since its public market debut in February 2011 and the 145.6 percent rise in shares of Supernus Pharmaceuticals from its April 2012 IPO. Pacira has been rising since its April 2012 launch of Expareo, a non-opiate, post-surgical pain killer. Supernus, a specialty pharmaceutical company focused on central nervous system disorders, has risen on news of tentative U.S. Food and Drug Administration approval of Trokendi XR, its once-daily extended release formulation of the anticonvulsant topiramate.

In both cases, fundamental developments drove stock performance as these companies advanced toward new product revenue. But these IPOs share another notable feature. Pacira and Supernus both took significant cuts to the target price of their offerings and raised considerably less than they had set out to raise. Pacira sold its shares at 53.3 percent below its initial target and Supernus sold its shares at 61.5 percent below its target. Overall, both companies downsized their offerings, each raising about 38 percent less than they had initially set out to raise.

"One indicator of performance has been the cut in target price that companies have been willing to take to get their deals done," says G. Steven Burrill, CEO of Burrill & Company, a diversified global financial services firm. "As a group, the IPOs that came at 50 percent or more below their target range were the best performing group while those deals that sold above their target range were the worst performing group."

Since 2010, the four life sciences IPOs that priced above their expected range are down 50.3 percent while 11 issues that came within their target range were down 46.5 percent. By contrast, the 11 issues that initially sold at 50 percent or more below their target range were up 20.7 percent.

When all life sciences IPOs since 2010 are considered, the picture grows grimmer. As a group, all 44 life sciences companies that have gone public since 2010 including therapeutics, tools and technology, medical devices, and industrial and agricultural biotech deals are down 18.5 percent during that period. That compares to an average increase for all U.S. IPOs of 9.4 percent during the same period. By comparison, the Dow Jones Industrial Average (up 25.5) and the Nasdaq Composite Index (up 35.1) trounced the performance of the group. Life sciences companies that went public in 2010 have dragged on the overall performance of the life sciences IPOs, with companies that went public that year down 47.6 percent.

Industrial and agricultural biotech IPOs have been the worst performers, with a 55.6 percent decline for all deals since 2010. Amyris Biotechnologies, which is using synthetic biology to develop alternatives to petroleum-based specialty chemicals and transportation fuels, was the worst performer among the industrial and agricultural biotech companies, falling 80.5 percent. The company pulled back production plans and shifted its strategy in February 2012 after it acknowledged difficulty in ramping its technology up to commercial scale.

Tools and technology companies have also been hard hit. As a group, the four companies in this sector that completed initial public offerings since 2010 are down an average of 45.3 percent. The next-generation sequencing companies Complete Genomics (down 66.2 percent) and Pacific Biosciences (down 87.7 percent) were among the worst performing life sciences companies as both faced difficulties building demand for their products.

IPOs continue to be scaled back and coming to market at a modest pace. Overall, the amount of money raised in IPOs through the first eight months of 2012 is down from a year ago. Through August, a total of 12 life sciences companies completed IPOs on U.S. exchanges to raise a total of $871 million. That's a 21.6 percent drop from the $1.1 billion raised in 13 IPOs during the same period a year ago. The drop is even sharper globally as life sciences IPOs around the world raised just $1.8 billion through the first eight months of 2012 in 25 IPOs. That represents a 48 percent drop from the $3.4 billion raised globally in 35 offerings during this same period a year ago.

"Certainly one thing that has helped improve the performance and outlook for IPOs has been improved stability in the market," says Burrill. "August 2012 represents a stark contrast to August 2011, when the fight over the debt ceiling in the United States and the unfolding debt crisis in Europe sparked a sharp drop in stock prices and fueled a period of volatility."

Medical device maker Globus Medical was the sole life sciences IPO to be completed in August on a United States exchange. The company raised $99.6 million by selling 8.3 million shares at $12 each. The offering came in below the company's target range of $16 to $18 dollars, but it also represented scaled back plans for the company, which original expected to sell 11.8 million shares with an eye to raising twice the amount it actually did.

The backlog of deals in the queue is growing. There are 21 life sciences companies in registration as of the end of the end of August. That compares to just 13 at the same time a year ago. Seven companies have withdrawn their IPOs so far this year.

"The market is more receptive to therapeutics companies right now, as long as those companies are realistic about their values," says Burrill. "However, the seven industrial biotech companies in registration right now face a hard road to going public until the ability to commercialize these technologies is better established and investors warm to their prospects."

   
   
   
Life Sciences Scorecard in USD M  
  Year-to-date 8-31-12   Year-to-date 8-31-11   Change  
  Global Venture Capital 8,303   6,595   25.9 %
  U.S. VC 6,425   4,926   30.4 %
             
  IPOs (25 in 2012 v. 37 in 2011) 1,781   3,428   -48.0 %
  U.S. IPOs (12 in 2012 v. 13 in 2011) 871   1,111   -21.6 %
             
  Global PIPEs 3,847   2,549   50.9 %
  U.S. PIPEs 1,041   1,136   -8.4 %
             
  Global Follow-ons 5,036   7,680   -34.4 %
  U.S. Follow-ons 4,805   4,058   18.4 %
             
  Global Other Equity 1,338   491   172.6 %
  U.S. Other Equity 1,040   198   425.0 %
             
  Global Debt Offerings 19,087   32,104   -40.5 %
  U.S. Debt 14,748   18,584   -20.6 %
             
  Global Other Debt 13,065   9,230   41.6 %
  U.S. Other Debt 11,566   3,621   219.4 %
             
  Total Global Public Financings 44,155   55,482   -20.4 %
  Total U.S. Public Financings 34,070   28,708   18.7 %
             
  Global Partnering 24,188   24,377   -0.8 %
  U.S. Partner/Licenser 13,504   15,743   -14.2 %
             
  Global M&A 81,591   130,498   -37.5 %
  M&A, U.S. Target 58,221   71,436   -18.5 %
             
             
             

August was a solid month for venture capital financings with a total of $1.1 billion raised globally. The bulk of that, $944 million, was raised in the United States. CardioDx, a developer of a gene expression test to diagnose obstructive coronary artery disease, raised the largest single round, closing a $58 million series F finacing. Through the first eight months of the year, a total of $8.3 billion has been raised globally for life sciences companies including therapeutics, tools and technology, medical devices, diagnostics, digital health, and industrial and agricultural biotechnology. That represents a 25.9 percent increase over the $6.6 billion raised during the same period a year ago.

Global M&A activity in the life sciences continues to lag the pace of 2011 with a total of $81.6 billion in transactions announced through the end of August. That represents a 36 percent decline from the $130.5 billion announced during the same period a year ago. Two acquisitions of generic drugmakers were among the month's largest transactions with the European private equity firm Cinven acquiring Mercury Pharma for $732 million and Sun Pharmaceuticals buying Taro Pharmaceuticals for $571 million. 

On the partnering front, August saw two deals with potential values in excess of $1 billion. Genmab entered an agreement worth more than $1.1 billion with Johnson & Johnson's Janssen Biotech over global rights to daratumumab, an experimental monoclonal antibody to treat cancer. The deal includes a $55 million upfront payment and an $80 million investment from Johnson & Johnson Development Corp for a 10.7 percent stake in Genmab. Separately, Molecular Partners entered into a potential $1.4 billion agreement with Allergan to develop and commercialize products for the treatment of serious eye diseases. Allergan will make an upfront payment of $62.5 million to Molecular Partners as part of the agreement.

Year to date, 21 new drugs and biologics have secured FDA approval compared to 25 through the first eight months of 2011. New approvals in August include Medivation and Astellas Pharma's prostate cancer drug Xtandi, Gilead's once-daily four-in-one combination therapy for HIV-1 infection Stribild, Sanofi and Regeneron Pharmaceuticals' colorectal cancer drug Zaltrap, and Ironwood Pharmaceuticals and Forest Laboratories' Linzess to treat irritable bowel syndrome and constipation. The FDA also approved the first generic versions of Takeda Pharmaceutical's blockbuster diabetes drug Actos and Merck's blockbuster asthma drug Singulair helping make 2012 a peak year of expected revenue loss to generic drugs from expiring patents on blockbuster drugs. Drugs with more than $35 billion in annual sales are expected to lose patent protection this year.

Court decisions in August also had implications for the life sciences. A U.S. appeals court upheld a district court's ruling that will allow the federal government to fund human embryonic stem cell research. Separately, a federal appeals court that had previously ruled on a challenge to patents held by Myriad Genetics, litigation that raised fundamental questions about the patentability of genes, found the company could patent isolated DNA, but not the methods for comparing those gene sequences. The decision maintains the status quo for now as the industry waits to see whether the decision will be appealed.

"Both these decisions are victories for the life sciences, but they are also a reminder of the ongoing legal challenges that threaten to put into place new barriers to funding important work to develop new diagnostics and therapies to improve human health," says Burrill. "It's likely such challenges will continue and the industry must remain ever vigilant to ensure it is free to innovate."

   
   
   
Burrill Indices  
INDEX 12/30/2011 7/30/2012 8/31/2012 YEAR CHANGE   MONTH CHANGE  
Burrill Select 432.49 567.71 581.37 34.40 % 2.40 %
Burrill Large Cap 529.22 683.4 707.89 33.80 % 3.60 %
Burrill Mid-Cap 295.33 355.53 346.89 17.50 % -2.40 %
Burrill Small Cap 82.75 103.01 102.54 23.90 % -0.50 %
Burrill Diagnostics 175.42 185.81 193.31 10.20 % 4.00 %
Burrill Personalized Medicine 100.62 111.75 114.59 13.90 % 2.50 %
Burrill Biogreentech 149.36 157.51 156.3 4.60 % -0.80 %
NASDAQ 2605.15 2945.84 3066.96 17.70 % 4.10 %
DJIA 12217.56 13073.01 13090.84 7.10 % 0.10 %
S&P 500 1257.6 1385.3 1406.58 11.80 % 1.50 %
Amex Biotech 1091.42 1487.01 1464.17 34.20 % -1.50 %
Amex Pharmaceutical 332.94 360.17 359.59 8.00 % -0.20 %
               
               
               

About Burrill & Company
Founded in 1994, Burrill & Company is a diversified global financial services firm focused on the life sciences industry. With $1.5 billion in assets under management, the firm's businesses include venture capital/private equity, merchant banking, and media. By leveraging the scientific and business networks of its team, Burrill & Company has established unrivaled access and visibility in the life sciences industry. This unique combination of resources and capabilities enables the company to provide life sciences companies with capital, transactional support, management expertise, insight, market intelligence, and analysis through its investments, conferences, and publications. Headquartered in San Francisco, the company oversees a global network of offices throughout the United States, Latin America, Europe, and Asia. For more information visit: www.burrillandco.com.

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