A 'rational' market finally develops an appetite for biotech IPOs

For 5 long years the IPO window on Wall Street has largely been closed to biotech companies. But with investors warming up to the potential rewards after a lengthy chill, Portola Pharmaceuticals became the latest biotech to pull off a successful maiden offering. The biotech raised $122 million from the sale of 8.4 million shares, sticking to the middle of its range after pricing shares at $14.50.

Portola is following in the footsteps of Stemline ($STML), Tetraphase, Enanta, Omthera and others which have--to varying degrees--finally found a return embrace from a public market that swore off high risk and money-losing ventures after the financial crisis of 2008. 

So far this year 14 biotechs have gone public, setting a mark early in the year that far exceeds all of last year's tally and any other year dating back to 2007. And market data firm Ipreo tells Reuters that the average return they delivered hit 20%, a very respectable showing compared to the 16% average. Not all IPOs have been a screaming success, of course. Several have priced far below the range that was hoped for. But there have been enough successes to spur more biotechs into the queue.

"The market for biotech isn't screaming hot, and it's not like everyone can get deals done, but we're seeing attractive returns being generated," Bob Carey, a managing director at JMP Securities, tells Reuters. "It's a rational market."

Just how long the bull market will continue to prop open the IPO window for biotech is anyone's guess, but the implications for the industry loom large. A drought of IPOs pushed the industry more toward the asset-polishing mode, creating new companies expressly designed to sell off their experimental merchandise to the highest bidder within a few years. Many VCs complained bitterly about the lengthy timespan on new product development, making it tougher to find the cash to get through early-stage work. More cash-outs by investors could deliver the kind of returns that help seed new funds, which in turn could spawn more startups. 

That's a positive for all biotech players. So keep your fingers crossed that the rational market stays warm to drug development.

- here's the report on Portola
- see the Reuters story on the biotech IPO renaissance

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