A closer look at the biotech IPO

We here at FierceBiotech have mentioned a number of times that the IPO is no longer the preferred exit strategy for many biotechs. Why take the risk, when there are so many pharmaceutical and large biotech companies waiting in the wings to pay a premium for promising companies? With investors often reluctant to pay serious money to fund a biotech bet in the IPO market, more and more drug developers are turning to buyouts as the best way to achieve a substantial payout for their early backers.

Still, some companies with promising pipelines take the IPO risk. Michael Shulman of BioHealth Investor profiles three companies that debuted strong but have since drifted down, despite impressive pipelines. As he observes, “these three companies went public on the strength of their investment banks as much as their own prospects--and perhaps for that reason the stocks have all drifted down and are now bouncing off bottoms.” But, he notes, just because these biotechs' shares aren’t performing strongly now doesn’t mean they don’t have promise in the long run.

Company: Amicus Therapeutics
Investment banks: Morgan Stanley, Merrill Lynch, and JP Morgan

Amicus Therapeutics went public in May with an IPO designed to raise $86.25 million. It debuted above $14--in the middle of its range--hit a high of $17 and is now at $12. Amicus has been developing therapies for chronic genetic disorders. Its lead drug is Amigal, in Phase II trials as a therapy for Fabry's disease.

Company: Jazz Pharmaceuticals
Investment banks: Morgan Stanley, Lehman Brothers, Credit Suisse and Natexis Bleichroeder

At $18 a share, Jazz raised $108 million dollars on its first day on the market--well under the forecasted range of $26-$28--and has since slipped to $16. Jazz is developing a host of drugs in the areas of neurology and psychiatry.

Company: Sirtris
Investment banks: J.P. Morgan, CIBC, Piper Jaffray, JMP Securities and Rodman & Renshaw

Sirtris has gained attention for its work with resveratrol--a compound in red wine that may have a positive impact on health and increase longevity. The company is working on drugs for Type II diabetes and other age- and diet-related diseases. Sirtris debuted at $11, peaked at $13, and is currently trading at $11.

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