Brace Yourself: Biotech IPOs Are Beating Tech’s Big Names

Brace Yourself: Biotech IPOs Are Beating Tech’s Big Names

The average American on the street has a Facebook account, an opinion about Facebook, heard about the Facebook initial public offering, and knows it collapsed. That same person doesn’t see how their life connects with biotech, probably can’t name a single biotech company, and certainly hasn’t heard of any members of the biotech IPO class of 2012.

But here’s something that might surprise both biotech insiders and the average guy or gal on the street. The biotech IPO class of 2012 has made money for investors, while tech’s most glamorous up-and-comers have been stumbling.

Regular readers of this column know that I’ve long been skeptical about how much appetite investors have for biotech IPOs. But I did notice some “modest signs of life” in the IPO market a few months ago, and was curious to follow up and see what has happened. By my count, there have been nine biotech IPOs so far this year, compared with 12 in all of 2011. That still says to me there’s limited demand from investors for new drugs, devices, and diagnostics. But of those nine companies that made it through the IPO gauntlet, six are trading above their IPO price and none have crashed.

Consider that for a second how the household names of tech are doing. Facebook (NYSE: FB) has plummeted from $38 to $21.81. Groupon (NASDAQ: GRPN) debuted at $20, and now trades for $7.44. Zynga (NASDAQ: ZNGA) has gone from $10 to $2.95. (For more on the tech vs. biotech stock market performance, see this recent post from Bruce Booth.)

Now take a look at the following scorecard for the biotech IPO class of 2012.

NameLocationIPO PriceLast closeWhat it does
Merrimack PharmaceuticalsCambridge, MA$7$7.38Cancer drugs
Chemocentryx Mountain View, CA$10$11.02Autoimmune, cancer drugs
Cempra Chapel Hill, NC$6$7.60Antibiotics
Verastem Cambridge, MA$10$8.92Cancer drugs
Supernus PharmaceuticalsRockville, MD$5$12.48Drugs for CNS disorders
Durata TherapeuticsMorristown, NJ$9$7.35Antibiotics
Hyperion TherapeuticsSouth San Francisco$10$10.35Treats rare diseases
TesaroWaltham, MA$13.50$13.42Cancer drugs
Globus MedicalAudubon, PA$10$13.90Spinal devices

This kind of solid, steady performance is critical to the overall health of biotech, which creates most of the valuable advances in medicine. Thankfully, I don’t see signs of the irrational exuberance that might encourage a bunch of smoke-and-mirrors biotech companies to jump in to take the money and run.

That’s always going to be a worry in this speculative industry, but right now the bigger worry is that there aren’t enough people willing to invest in taking biotech companies to the public markets. When the biotech IPO market suffers, it makes it much tougher for venture capitalists to get a good return on their investments in startups, because that leaves them with only one good option left for cashing out—selling their best portfolio companies to Big Pharma. During this year of discontent in life sciences venture capital, while many firms are struggling to raise new funds to survive, many VCs are grasping … Next Page »

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