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Tuesday, Mar 21, 2023

Public Performance

A boom year for initial public offerings by San Diego biotechnology companies is generating momentum that will buoy regional growth in that sector, industry stakeholders said. With four such IPOs executed in 2013 and two more on the way, mirroring a national trend, it’s been a boon that could help reverse a 13-year drought for investing in life sciences.

Ambit Biosciences Corp., Conatus Pharmaceuticals Inc., Receptos Inc. and Sophiris Biosciences Inc. have gone public since May and have seen their stock prices hold steady or soar, while Fate Therapeutics Inc. and Evoke Pharma Inc. have filed and are expected to trade publicly soon.

And many more are expected to come.

“The markets are the strongest they’ve been in a long time, and the hottest sector of the IPO market is the biotech sector,” said industry veteran Ivor Royston, an oncologist, founding managing partner at Forward Ventures and co-founder of storied San Diego biotech IDEC Pharmaceuticals Inc. “The after-market performance has just been unbelievable, and it’s creating momentum for more IPOs to follow.”

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Nationwide, there have been 176 IPOs this year — 34 of which are health care and biotechnology companies, the most in any sector. This is a 62 percent increase in IPO activity from last year, according to Greenwich, Conn.-based Renaissance Capital LLC.

Meanwhile, stock prices for these newly public biotech companies are up 34 percent, according to data compiled by Bloomberg. The general market, by comparison, is up by 14 percent.

The last time the sector saw this kind of IPO activity was during the dot-com salad days of 2000, when an unprecedented 63 biopharmaceutical companies went public and raised more than $6 billion. Last year, there were 12, with just one — Regulus Therapeutics Inc. — in San Diego.

IPO Market Offers Independence

San Diego has a longstanding reputation of innovation and acquisition — meaning cutting-edge technologies are developed here and are bought by multinationals that swoop in offering lucrative exits. A most notable case in point, Carlsbad-based Life Technologies Corp., was acquired earlier this year by Waltham, Mass.-based Thermo Fisher Scientific Inc. for $13.6 billion.

A strong IPO market, however, will afford area companies the sustainability to remain independent, Royston said.

“It’s safe to assume that all the strong San Diego biotech companies have plans — or are at least strongly considering — to go public,” Royston said. “It’s a no-brainer.”

For example, Ambit Biosciences (Nasdaq: AMBI) made the decision to go public right on the heels of Regulus going public in October 2012.

“As soon as we saw the IPO market had opened up again, we felt it was important to capitalize on that as soon as possible,” said Receptos CEO Faheem Hasnain, who is also chairman of the board for Ambit Biosciences.

Receptos (Nasdaq: RCPT) went public May 9 at $14 per share, and its stock price had risen to $22.47 as of Sept. 19 — a 60.5 percent increase.

Conatus Pharmaceuticals (Nasdaq: CNAT), which went public July 25, and Sophiris Biosciences (Nasdaq: SPHS), which did so Aug. 16, have had more modest gains. Conatus debuted at $9.50 and closed at $9.61 on Sept. 19, while Sophiris has risen from an initial price of $4.15 to $4.98 on Sept. 19.

Building on Success

Hasnain began thinking about taking Receptos public last October, and he started making calls to several other CEOs who had recently gone public — testing the waters, seeing if the time was actually right.

It was.

Hasnain said he was particularly interested in following the performance of Boulder, Colo.-based Clovis Oncology Inc. (Nasdaq: CLVS) to help inform Receptos’ decision to go public.

Clovis has made significant gains in its stock price and is reportedly in acquisition talks — a sound exit strategy, considering its shares have shot up from $12.69 when it went public in late 2011 to $75.23 on Sept. 19.

Hasnain said successful IPOs build on each other — much like Receptos’ public foray followed the performance of Clovis and other biotechs.

“When an investor sees this sector is doing well post-IPO, they think, ‘Can we afford not to be in this segment?’” Hasnain said. “It becomes a rolling phenomenon.”

What Might Have Been

Royston said a difference between many of the biotech IPOs today compared with a few years ago is their level of maturity. In the past, primarily late-stage companies were going public, but in this recent burst, many of the biotechs haven’t even progressed to clinical trials.

Ambit Biosciences is a late-stage, mature biotech that’s been something of a swan song in its quest to go public, Royston said. It has been chasing an IPO since 2010.

But in June 2011, the company withdrew its request with the U.S. Securities and Exchange Commission to raise about $86 million through an initial public offering. It said in a regulatory filing that the IPO would have been a discretionary financing and that the terms available at the time in the marketplace “weren’t attractive enough to proceed.”

They were this year, Ambit CEO Michael Martino said.

“But by the time we priced our transaction, the market was going through a choppy phase,” Martino said.

This year, the company priced itself at $13 to $15 per share before it was prompted to dilute the shares and bring the price down to $8 per share because investors were skeptical. One of Ambit’s investors, Japanese pharma company Astellas Pharma Inc., ended a $390 million partnership deal with the company.

Ambit has since rallied, and its stock — which opened on May 16 at $7.39 per share — has since nearly doubled to $14.74 as of Sept. 19. And it could have done better, said Royston, whose Forward Ventures was an early investor in Ambit.

“The irony of the whole thing is that if Ambit today was what Ambit was in 2005, it might have had a more successful IPO,” Royston said.

Keeping the IPO Window Open

Investors are becoming increasingly sophisticated and savvy about understanding the types of biotechnology companies that are worthy of funding, said Joe Panetta, president and CEO of San Diego biotech trade organization Biocom. Further stability in intellectual property and patent expiry legislation is enabling smaller companies to spread their wings and go public, he said.

“What we’re beginning to see now is much more stability in the investor community,” Panetta said.

Royston, who recently met with several investment bankers in New York, said the Wall Street sentiment is that barring a major macroeconomic issue — like a war in Syria — the marketplace will continue to support this biotech IPO frenzy well into the next year.

But both Panetta and Royston voiced concern over how long this “window” of biotech IPOs could stay open.

“What I’ve seen in the past is, as a market heats up, lower-quality companies go public but then start to flounder,” Royston said. “Once people start losing money, that’s when the train of IPOs begins to slow.”

It’s a waiting game, they said, but it’s one that they’re looking at with great optimism.

“All these things are cyclical,” Hasnain said, “but we hope this IPO window will be a longer cycle — more than just a flash in the pan.”


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