Are biotech IPOs already getting too hot to handle?

Later this week a pair of biotechs--Cambridge, MA-based Epizyme ($EPZM) and Israel's Kamada ($KMDA)--are expected to join the lengthening list of drug developers going public after a long drought in the IPO field. Kamada has laid out a plan to raise $69 million for its protein therapeutics work while Epizyme set out in pursuit of $74 million, if it can score at the top of its range.

So far 10 startups have gone public, raising $725 million this year. Not all of them have been big winners, but there have been enough success stories--check out Chimerix ($CMRX), which went public at $14 and now trades at $22--to spur in a new slate of drug developers. Just days ago, Prosensa, which is in a race with Sarepta ($SRPT) to develop a new treatment for Duchenne muscular dystrophy, announced its plans to jump in. And now some analysts are telling the financial press that something like 20 more biotech IPOs could come along in just the next few months, dwarfing the meager rate we've been seeing since the financial crisis of 2008.

"There is much more of a risk-on mentality with how the buyside is viewing biotechnology now," Jill Ford, managing director of equity capital markets at Credit Suisse, tells the Financial Times. "What's helping push the current market is that more generalist investors are taking a look at this asset class."

Of course, no sooner do biotech IPOs get hot than somebody comes along with a bucket of cold water.

"Genetic information is providing a big opportunity for new drug development," Rajiv Kaul, portfolio manager of Fidelity Investments Select Biotechnology Portfolio, tells Reuters. "There are exciting new opportunities, but you also need to be careful because most drugs fail."

More than 90%, to be exact. Prosensa's new $60 million IPO filing helps underscore just how big the risks can be. Not only can its Phase III therapy--now in the hands of GlaxoSmithKline--fail, Sarepta could come along and manage to persuade the FDA to hand out an early OK for its rival drug. And that could destroy any market opportunity it once dreamed of.

Still, dozens of biotechs have been holding off on IPOs, waiting for some sign that they won't get trounced once they start selling shares. So now that investors appear willing to kick the tires and take some chances, there are plenty of candidates ready to roll.

- here's the feature from the Financial Times (sub. req.)
- read the report from Reuters

Special Reports: Top 10 biotech IPOs of 2012 | Epizyme - 2011 Fierce 15

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