Everybody with a financial stake in biotechnology will be watching Ironwood Pharmaceuticals this week, as it attempts to pull off the biggest initial public offering the industry has seen in years.
The Cambridge, MA-based company, which filed its original IPO prospectus on Nov. 20, is now primed to go ahead and start selling its first shares on the NASDAQ market this week under the ticker IRWD, according to Renaissance Capital. If the company and its investment bankers pull the trigger, this will be a monster deal for a biotech company still in the product development phase. Ironwood could raise as much as $306 million if it can command the high end of its forecasted price range of $14 to $16 a share, which would establish an initial market valuation of more than $1.5 billion.
Biotech has been itching for someone to come along and whet the appetite of Wall Street for new companies, so that venture capitalists and entrepreneurs can realize the big paydays they need to justify the risks of drug development. Only one biotech company in the drug development stage, Seattle-based Omeros (NASDAQ: OMER), has gone public in the past two years, and that was a dud. So if Ironwood can find demand for its shares at the high end of its range, and the stock price rises on the first couple days of trading, it could provide a lift to the entire industry, including both public and private companies, according to three veteran market watchers I spoke with on Friday.
“There is huge buzz about it, and it could be bigger than most biotech IPOs in recent memory. The whole industry is waiting with baited breath and watching how it trades,” says Bob Nelsen, managing director of Arch Venture Partners in Seattle. “There is no question they will get a good price and get out, so the big question is what happens post-IPO. If it goes out strong, the number of followers will be much larger. If it goes out weak, only a few super-high-quality deals will get through the window. My fingers are crossed.”
Then again, a couple others I spoke with said that Ironwood is clearly a different beast than the average biotech. So while it will have an impact on the sector as a whole, it won’t necessarily re-ignite the IPO market.
“It’s a great story, but it’s more of a singularity,” says Richard Pops, the CEO of Cambridge, MA-based Alkermes (NASDAQ: ALKS), a longtime market watcher with no ties to Ironwood. “There aren’t five other Ironwoods teed up behind them.”
What’s different about Ironwood? The company has an oral pill in development that has already passed two pivotal clinical trials, so much of the clinical trial risk has been removed. The product is for a potentially vast market of millions of people who suffer from chronic constipation and irritable bowel syndrome, and who don’t have good treatment options. And Ironwood already has big partners to market the drug in North America, Europe, and Asia.
The product, linaclotide, has made it possible for Ironwood to raise more than $300 million since it was founded in 1998. The company still had $98 million in cash in the bank at the end of September, so it’s not doing an IPO because it needs more cash to keep the doors open. The company is led by CEO Peter Hecht, a former scientist at the Whitehead Institute for Biomedical Research in Cambridge, MA, and one of its newest directors is David Ebersman, the highly regarded former chief financial officer of Genentech. Wall Street’s big name underwriters are lined up behind Ironwood—JP Morgan Securities, Morgan Stanley, Credit Suisse, Bank of America/Merrill Lynch, and Wedbush PacGrow Life Sciences.
“This is going to be a large, liquid stock from the beginning, and that right there makes it different from a lot of others,” Pops says.
The more typical kind of biotech IPO would be for a company with an exciting platform technology, and products that face far more risks ahead than Ironwood, Pops says. That kind of company is more likely to command a $300 million to $400 million market capitalization, not $1.5 billion, he says.
Many venture capitalists, even though they know their portfolio companies don’t have the same kind of profile as Ironwood, are drawing up their IPO prospectuses based on the assumption that Ironwood will pry open the window of opportunity, says Doug Fambrough, a general partner with Oxford Bioscience Partners in Cambridge. One reason is the sense that Ironwood might be one of those rare opportunities that has crossover appeal into the wider world of investors who control a lot of capital, but don’t normally get involved in the life sciences.
“It’s widely expected to draw general investors who otherwise won’t play in the biotech space,” Fambrough says, noting that if Ironwood does well, the generalists might look for more opportunities like it. And that would help guys like him. “If Ironwood performs well, that will affect the mood of investors in the more specialized biotech community,” Fambrough says.
Of course, if Ironwood flops, it could throw a lot of cold water on all this optimism. “If [Ironwood] goes public at $9, it will suggest the valuation pressure is more intense than everybody thought, and if Ironwood can’t justify a $1 billion valuation, then it’s really open season on valuations,” Fambrough says. “It will be hard to see how an Aveo Pharmaceuticals can get an aggressive valuation if Ironwood can’t.”
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