Special Report—Biotech IPOs rebounded in 2017 and may keep rolling into 2018

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(Image: Natalie Murphy)

2016 was a dismal year for biotech IPOs—several companies canceled or delayed their IPOs, while, of the IPOs that did get off, many showed a heavy reliance on insider buying and nearly all of them ended up breaking issue.

Because the outlook seemed so miserable, we figured that biotechs might choose a different route in 2017—partner with a pharma, seek private funding instead, or hold out for a merger deal.

Well, the results are in and the conclusion, at least according to Renaissance Capital, is that 2017 was “good, but not great.”

2017 logged 160 deals, 50% more than 2016 did, with 40 biotechs pulling off IPOs. The biotech and technology sectors drove the bounceback, but many of these biotechs were too early stage to fail trials, which could account for the positive trend, Renaissance said in its 2017 annual review.

Biotechs led the pack in terms of returns, taking four out of the top six spots for best-performing IPOs. AnaptysBio, ArgenX, UroGen and Calyxt may not have priced above the midpoint—none of them broke the top 10 biotech IPOs, with only ArgenX making it into the top 20—but they all had gains of 175% or higher. Antibody therapeutics company AnaptysBio had the best return of all: 571%.

But, just because biotech IPOs had some of the best returns, being in the space did not guarantee success, as ZymeWorks found out. The protein therapeutics company priced its IPO at $59 million. It wasn’t the smallest deal—in fact, two of the top performers, UroGen and Calyxt raised less—but its return ended up rock-bottom at -41.6%.

More than one-third of biotech IPOs were cancer plays, including Odonate, Zai Lab and Deciphera, three of the top 10 biotech IPOs by deal size. Neuro disease player Denali Therapeutics topped the list with a $250 million IPO, while four companies working on rare disease treatments also made the list. Rounding out the top 10 were Ionis’s spinout, Akcea, which is working to get its volanesorsen for a pair of rare lipid disorders, and Optinose, which will soon roll out its drug-device treatment for nasal polyps.

Like in 2016, existing investors participated in nearly every deal. According to those listed by Renaissance, 93% of biotech IPOs had some insider buying, with 34% of the average deal being covered by existing backers. This is a drop from the 40% reported in 2016, which actually doubled the 20% average from the two previous years.

Renaissance expects the good fortune to roll into 2018, saying “biotechs should continue to come to market in 2018, driven by innovations in therapeutic approaches.”

“At the minimum, we expect 2018 to match this past year’s activity, and would not be surprised to see as many as 200 IPOs raise $50 billion in a year that makes the IPO market ‘great’ again.”

That said, the increasing frequency of huge early rounds—think Gritstone Oncology’s $195 million combined series A and B and Viela Bio’s $250 million series A—may mean that biotechs will wait longer to go public as the kind of capital traditionally raised in IPOs are becoming available privately.

1–Denali Therapeutics

Deal size: $250 million
Valuation: $1.7 billion
Share price: $18
Shares sold: 13,888,888

Denali Therapeutics is working to fight neurodegenerative disease by targeting four pathways that trigger or effect neurodegeneration: egenogenes (genes that cause neurodegenerative disease when mutated), defective intracellular trafficking, glial dysfunction and axon degeneration.

The South San Francisco biotech followed up its $347 million combined series A and B haul with the biggest IPO of 2017, setting it up to push its Alzheimer’s and Parkinson’s programs through early clinical trials. It set aside $35 million for the former, a small molecule inhibitor of RIPK1, currently in preclinical studies. The cash could propel the candidate as far as phase 2a. It also pledged $20 to $25 million to develop two small molecule inhibitors of LRRK2 in Parkinson’s disease. It will take both candidates through phase 1 before choosing one to carry into phase 1b.

2–Ablynx

Deal size: $200 million
Valuation: $1.3 billion
Share price: $17.50
Shares sold: 11,430,000

Ablynx filed for a $150 million IPO on the back of positive phase 3 data for caplacizumab, its drug for acquired thrombotic thrombocytopenic purpura (aTTP), a rare blood disorder where clots form in small blood vessels throughout the body. This increased clotting uses up platelets in a patient’s blood, which can lead to bleeding problems. The topline data for acplacizumab, an anti-von Willebrand factor single-domain antibody, linked the candidate to a statistically significant drop in platelet count response. Ablynx is preparing to market the drug in the U.S. and EU.

On the research side, Ablynx is using some of its IPO funds to advance ALX-0171, its nebulized treatment for respiratory syncytial virus (RSV), through a phase 2b trial. The biotech expects to finish the trial by the end of the year and then court partners to help bring the drug to a late-stage study in infants who have been hospitalized by RSV.

3–Odonate Therapeutics

Deal size: $150 million
Valuation: $645 million
Share price: $24
Shares sold: 6,250,000

Odonate Therapeutics, which has kept pretty quiet about its work, is developing tesetaxel, an oral chemotherapy that is now in phase 3 for locally advanced or metastatic breast cancer. Tesetaxel is in a class of drugs called taxanes, which can currently only be delivered intravenously, requiring patients to travel to infusion centers for treatment. In addition to being a more convenient pill form, the drug doesn’t contain certain ingredients that can cause allergic reactions.

While the biotech didn’t share where it would direct its IPO funds, it aims to develop tesetaxel into a drug that provides quality-of-life advantages over traditional chemo options. It has been tested in 22 clinical studies as both a monotherapy and in combination with other meds.

4–Zai Lab

Deal size: $150 million
Valuation: $998 million
Share price: $18
Shares sold: 8,333,333

Zai Lab started life in 2014 and soon built up a clinical pipeline by striking deals with GlaxoSmithKline, Sanofi, Paratek Pharmaceuticals, Tesaro, Bristol-Myers Squibb and others. Last August, it teed up to raise up to $115 million in its Nasdaq IPO, saying it would focus its new capital on drugs licensed from the latter three companies.

Part of the proceeds will support phase 3 trials of Tesaro’s FDA-approved PARP inhibitor, niraparib, in breast, ovarian and lung cancers. Zai Lab is already prepared to become the first company to get a PARP inhibitor approved in its home country, having reserved some of its IPO haul to commercialize the drug in China, Hong Kong and Macau. It will also push the antibiotic omadacycline, picked up from Paratek through phase 3 and advance ZL-2301, a tyrosine-kinase inhibitor that had failed two late-stage trials. While poor data stopped Bristol-Myers from submitting ZL-2301, previously called brivanib, for approval, Zai Lab is hopeful that it might find a market in China.

5–Appellis

Deal size: $150 million
Valuation: $750 million
Share price: $14
Shares sold: 10,714,000

As biotech IPOs came to a near standstill in early 2016, Appelis pulled its planned $86 million filing, instead choosing to replenish its coffers via a $47.1 million private round. But second time turned out to be the charm for the Kentucky biotech, which pulled off a $150 million IPO in November on the back of strong clinical data.

Appellis focuses on drugs that block the complement system, an immune pathway. It expects the IPO cash to give its lead drug runway until the first quarter of 2019. APL-2, a complement C3 inhibitor, is in phase 2 trials for paroxysmal nocturnal hemoglobinuria (PNH), a rare blood disorder that has only one FDA-approved treatment: Alexion’s Soliris. The candidate has also shown promise in geographic atrophy (GA), an advanced form of age-related macular degeneration (AMD), and is in early-stage development for autoimmune hemolytic anemia (AIHA), which has no FDA-approved treatments.

6–Deciphera

Deal size: $128 million
Valuation: $599 million
Share price: $17
Shares sold: 7,500,000

Deciphera is working to hit cancer right in the drug resistance by creating more effective kinase inhibitors. The FDA has approved dozens of kinase inhibitors, and more than 200 have made it into the clinic, but this class of drugs has run into some problems, namely poor selectivity and potency, as well as drug-resistant mutations in kinases.

The company has three clinical-stage programs and two research-stage ones based on its kinase switch control platform. Its lead candidate, DCC-2618, is designed to go further than currently available drugs and inhibit the full spectrum of KIT and PDGFRα mutations in solid tumors. It is being developed for gastrointestinal stromal tumors, advanced systemic mastocytosis and gliomas. Its other two clinical-stage candidates are DCC-2618 and rebastinib, which target the kinases, CSF1R and TIE2, respectively.

7–Akcea Therapeutics

Deal size: $125 million
Valuation: $520 million
Share price: $8
Shares sold: 15,625,000

Ionis Pharma’s lipid disorder subsidiary struck out on its own in July, but got off to a rocky start. It priced its IPO well below its target, an indication that investors may have been leery. It went for $8 a share instead of the $12 to $14 it was hoping for—but still met its $125 million goal by selling 62% more shares than it originally intended.

Akcea will spend most of its IPO funds to bring its lead asset, volanesorsen, picked up from Ionis, to market in amilial chylomicronemia syndrome (FCS). The cash will also finish up a phase 3 trial of the drug in familial partial lipodystrophy (FPL), which is expected to read out in 2019. And the company has added another drug to its plate—in March, Akcea inked a commercialization deal with Ionis to roll out inotersen, developed to treat hereditary transthyretin amyloidosis (hATTR).

8–Clementia

Deal size: $120 million
Valuation: $495 million
Share price: $15
Shares sold: 8,000,000

Quebec’s Clementia picked up a once-failed COPD drug from Roche, noting its potential to block bone formation. It is working to get the drug to market for the treatment of fibrodysplasia ossificans progressive (FOP), a rare and disabling genetic disease characterized by damaged soft tissue—such as muscles or ligaments—regrowing as bone.

Data from a 40-patient phase 2 trial was less than stellar, but nonetheless emboldened Clementia to move the candidate, palovarotene, forward. The IPO funds will carry it through phase 3 and, assuming all goes well, the company will file for approval. The company is also testing palovarotene in other indications—it is planning a phase 2/3 trial in another ultrarare genetic bone disease, multiple osteochondromas, as well as in phase 1 and 2 trials for dry eye disease.

9–Optinose

Deal size: $120 million
Valuation: $645 million
Share price: $16
Shares sold: 7,500,000

Optinose filed for its IPO days after it scored the FDA nod for Xhance, its drug-device combo for the treatment of adults with nasal polyps. It will focus most of its IPO dollars on commercializing the treatment, expecting to roll it out in early April. The firm is taking on Merck’s Nasonex, which doctors prescribe to treat chronic sinusitis with polyps, and GlaxoSmithKline’s Beconase AQ, used to improve symptoms of patients who have undergone sinus surgery. But, Optinose says, these options do not consistently deliver steroids to the origins of polyps deep in the nasal passages.

With a mouthpiece and nasal nozzle, Xhance prevents losing the drug through exhalation. Optinose aims to convert the 5,000 primary care physicians that prescribe intranasal steroids for nasal polyps. And the firm is already looking at ways to extend its reach. The IPO funds will also back a pediatric trial of patients with chronic sinusitis, which could open up a substantial market for Optinose. But it hedged itself, saying that because Xhance was designed for adults, it may end up being “unsuitable” for pediatric patients and it may have to deploy considerable funds and time to create a new one for use in the trial.

10–Rhythm Pharmaceuticals

Deal size: $120 million
Valuation: $466 million
Share price: $17
Shares sold: 7,050,000

In September, rare disease player Rhythm Pharma wanted $115 million. But when it priced its IPO a month later, it sold more shares at a higher price than planned, sending it full steam ahead with its lead candidate, setmelanotide. The candidate was developed for two rare genetic diseases, pro-opiomelanocortin (POMC) deficiency obesity and Prader-Willi syndrome, that cause life-threatening obesity.

The candidate is currently in a phase 3 trial in POMC, a disease so rare it only affects about 50 people. It aims to report data in the first half of 2019 and, with such a small patient population, is hoping for a speedy approval. Rhythm will use some of its IPO cash to prep for its commercial launch. The funds will also support trials of setmelanotide in leptin receptor deficiency obesity and Bardet-Biedl syndrome, another genetic condition characterized by overweight.

Sources: Brad Loncar, “Biotech IPOs Class of 2017," Renaissance Capital, "US IPO Market 2017 Annual Review"

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