'The silver lining': Biotech IPOs in the time of coronavirus

The COVID-19 pandemic has upended the public markets, leading to a “disastrous” first quarter and “throwing a wrench” in what Renaissance Capital once expected to be the most productive IPO season of the year. But every cloud has a silver lining and experts agree that in this case, it’s the biotech industry.

“The biotech market is unique for a few factors, one of them being the long-term nature of investors who support these fields,” Jordan Saxe, head of healthcare listings at Nasdaq, told FierceBiotech. “They’re not focused on a quarter-to-quarter metric; they’re looking at an average milestone readout that is at least 12 months from the IPO.”

The drug development cycle is long, and companies need to continue raising capital to bankroll their pipelines. That includes tapping the public markets not just for IPO proceeds but for follow-on offerings to keep funding the next stage of development, Saxe said.

“It’s the lifecycle of how drugs get brought to market and it is irrespective of what’s happening in the market on a month-to-month basis,” he added.

That said, the virtue of being in biotech doesn’t mean a company will pull off an IPO during the pandemic. It will be easier for companies who are “pretty far along in the process,” and who have spent time meeting with investors to manage a virtual roadshow and a virtual IPO.

“I don’t think every biotech will have that opportunity,” Saxe said.

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When FierceBiotech spoke with Saxe, the Nasdaq had seen 14 healthcare IPOs that raised a total of $3.3 billion. Two of those deals were biotech IPOs—Imara’s and Zentalis’—that priced after the pandemic hit. Since then, Keros Therapeutics raised $96 million in an upsized IPO.

“Most of these deals have had a strong crossover round—the investors they’re selling to are very familiar with the story. They understand it. It’s a small group of investors versus a large tech IPO, which may have a much broader distribution base,” Saxe said.

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If social distancing rules relax in the summer, Saxe expects the IPO window to open in late May, June or July, with another window to follow after Labor Day and a third window post-Thanksgiving.

“We have demand. And there is enough interest on the supply side, in terms of private biotechs looking to go public in the next 12 to 24 months,” he said. Even if half of them ditch their IPO plans because of poor data readouts, there will still be plenty of biotech IPOs in the pipeline.

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“I think given the setup we have—enough companies to fill the supply side—and assuming the relaxing of social distancing rules come into place, we have inventory that can easily get us to 30-plus IPOs in the biotech and pharma world this year,” he said. “It’s the silver lining in this IPO market.”

When asked if the trend of biotech companies getting out would continue, Saxe cautioned that, at the time we spoke, there was “a data set of two.”

“It’s not the data set I’d like to have, but that being said, good companies with good crossover investors, good science and good management will always get out,” he said.

“When we look at the last two IPOs that went out in a really tough market, not only were they well-received, they traded very well,” he added.

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Jon Norris, managing director at Silicon Valley Bank, pointed to Zentalis and Keros’ strong performances, as well as the ability of venture firms like Arch Venture Partners, Flagship Pioneering and Deerfield Management to raise new healthcare funds, as positive markers.

“Combining sustained public market appetite, good performances by crossover investors and traditional funds working with new or recently raised assets, we believe that the healthy run in biopharma will continue,” Norris wrote in SVB’s Biopharma Exit Outlook last Monday.

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And what if social distancing measures drag on past summer?

“We may lose that May/June/July window,” Saxe said. It would depend on how many companies would be ready to go in the September/October window—assuming that window opens—and then how many others could list in the last, post-Thanksgiving window.

At the moment, companies seem optimistic.

“We are talking to companies still on file confidentially planning for IPOs later this year,” Saxe said. “Whether or not they go and execute the roadshow depends on market conditions and other factors, but I think the feedback we’re getting is positive. No one is withdrawing their filings. People want to have the option to go out. They need to raise money to complete trials and keep progressing their drug forward.”