Written by Shailesh Maingi, CEO & Founder, Kineticos
Earlier this year, Renaissance Capital released its IPO report for 2015. Buried in this report is data relevant to Life Sciences companies, particularly emerging biotechs. The key takeaway is that the last three years have seen a biotech IPO boom. But before we dig into the biotech themed findings, it’s important to understand the context for the broader IPO market (Chart 1).
Here are the key takeaways from the Renaissance report:
- IPO proceeds hit a six-year low of $30 billion
- 2015 tech based deals dropped 56% in value compared to 2014
- Healthcare comprised 46% of all deals, led by biotech
- Large deals fell significantly as leveraged buyouts were absent in Q4
- 57% of deals ended below their IPO price
- Private equity deals were down 45%
- Venture capital deals were down 33%
Not surprisingly, biotechs were a dominant theme for the IPO markets the last 3 years (Chart 2). In fact, during this span, there have been a total of 167 biotech IPOs, raising the total of $12.9 billion.
Here are a few highlights for the biotech community:
- Biotech comprised 35% of all IPO deals in 2015, up from 26% in 2014 and 17% in 2013
- The total amount of funds raised in 2013-2015 was greater than all of biotech IPOs for the previous 13 years combined
- In 2015 alone, 59 biotech companies went public raising nearly $5 billion
- Biotech proceeds were 14% higher in 2015 compared to 2014
- Six biotechs were valued at greater than $1 billion
- Compared to a 41% rise in biotech value in 2014, biotech companies fell 3% in value in 2015
- After Labor Day, the number of biotech companies going public diminished substantially
- December was the only month in 2015 when not a single biotech went public
Bottom line: it’s been a great run! More companies went public and for higher valuations. But it’s not all good news. The last 6 months have been very challenging to the biotech IPOs and valuations.
What does this mean for the short term for biotech IPOs? First, let’s review some history. The great recession impacted the IPO market significantly, particularly for riskier assets like biotechs. The recession essentially killed the market for new biotech issues. From 2007 to 2012, only 28 biotechs (on average, 5 per year) went public.
It was survival of the fittest for the biotech community during this period. The weaker biotechs perished due to a lack of funding. But other biotechs continued to improve. They became more focused on the few clinical programs that could make a difference; they invested in their technology platforms. The companies continued their research and generated positive clinical data, which helped to raise private funds to progress their clinical programs. They poached the best people from the fallen biotechs, and cut back unnecessary spending.
When the capital markets opened again in 2013, there was an ample backlog of fundamentally sound biotech companies ready to go public. All these factors then resulted in a robust biotech IPO market over the last 3 years.
So what should we expect in 2016? Likely I think we’re headed to a reversion to the mean. So far in 2016, only 5 biotechs have raised money through an IPO: Beigene, Editas, Proteostatis, AveXis, and Syndax. If we average out the last 9 years, which takes us through a trough and peak of the biotech IPO cycle, then we see that we’ve had an average of 24 biotechs go public with a total proceeds of $1.7 billion per year.
I think that might be a little low given the recent innovations in gene and cell therapy, RNAi technology, immuno-oncology, precision medicine and gene editing, but probably not too far from reality.
Shailesh Maingi is the Founder and CEO of Kineticos and has a passion for the role R&D plays in improving healthcare outcomes. Mr. Maingi is also an adjunct professor at the Kenan Flagler School of Business at the University of North Carolina and serves on the board of directors for a number of biopharmaceutical, diagnostic and contract manufacturing companies.
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