Small drug discovery firms are capitalizing on the positive momentum that's returned to the market for biotechnology stocks. A dozen have announced plans this quarter to launch initial public stock offerings (IPOs), while nearly as many more hope to raise money through follow-on bids. The upturn, if it persists, may help rescue a sector where limited cash flow has precipitated major cutbacks and consolidation.
The number of IPO announcements began to rise dramatically in late August. The shift was easy to see since biotech has been in an acute drought: The last IPO occurred back in the second quarter of 2002. And, whereas biotech IPOs raised less than $450 million in all of 2002, the 12 announced this quarter already target more than $850 million.
After two years of declines, better stock market conditions, a run of regulatory approvals, strong clinical data, and better than anticipated earnings are driving a recovery in biotech stocks, says Andrew Barker, chairman of the venture-capital firm International Biotechnology Trust. As of last week, C&EN's biopharmaceutical stock index had climbed nearly 50% from a first-quarter plateau around 290 (1992 = 100).
"Quite a few companies have matured to the point where they want to go public, and the capital markets are enticing," says G. Steven Burrill, CEO of the merchant bank Burrill & Co. But the bar has been raised, and an important common thread among those embarking on IPOs is "products in the clinic and/or marketplace," Burrill notes. "There's not a single platform [technology] company in the bunch."
The rising tide is lifting all boats, and already-public companies are finding investors interested in follow-on offerings as well. This month, nine firms announced plans to raise nearly $600 million, led by Neurocrine Biosciences' $200 million public offering, while private-equity investments are bringing in hundreds of millions more.