One thing is becoming clear to companies in today’s biotech IPO market: Don’t expect the market value you would’ve gotten a year ago.
San Francisco-based MyoKardia was the latest example. The company priced 5,437,500 shares at $10 apiece, for a roughly $50.5 million haul after discounts due to underwriters. Even with the help of partner Sanofi, which has followed through on a concurrent deal to buy 900,000 more shares at the IPO price (for another $9 million), MyoKardia has priced far below its projections. The company had been hoping to sell its shares at $15 to $17 apiece, which at its midpoint would’ve been good for about $86 million in total.
The adjusted IPO has become a common theme of late. Companies like Dimension Therapeutics (NASDAQ: DMTX), Edge Therapeutics (NASDAQ: EDGE), Mirna Therapeutics (NASDAQ: MIRN), CytomX Therapeutics (NASDAQ: CTMX), and others have all had to adjust their initial expectations, and either sell shares at a discount or sell more discounted shares than they intended to—creating more dilution among shareholders—to hit their financial targets.. The biotech IPO market is no longer churning out one mega IPO after another—like the record breaking $300+ million hauls of Axovant Sciences (NASDAQ: AXON) this past summer or Juno Therapeutics (NASDAQ: JUNO) in December 2014.
Then again, perhaps this isn’t all doom and gloom, but rather that early-stage biotechs are just being valued for what they are—risky investments. CytomX and Dimension, for instance, are preclinical companies. MyoKardia’s most advanced drug is in Phase 1 testing. The more human data a biotech has, the less risk, and the greater the value it can typically get from investors. This calculation was seemingly out of whack a few years ago, when companies at MyoKardia’s stage of development would debut with huge valuations and stun the market. Dicerna Pharmaceuticals (NASDAQ: DRNA) had yet to produce any human data, yet priced in January 2014 over its projected range and tripled in its first day of trading. In June 2013, Bluebird Bio (NASDAQ: BLUE) went public on the strength of data from an old gene therapy delivery vector—not the one it was using going forward—and also had a big debut.
What type of trickle down effect the move away from giant IPOs will have on the biotech startup world remains to be seen. A number of biotech venture firms have raised big new funds during the boom, and have a lot of cash to support early-stage innovation if a long correction has begun—Frazier Healthcare Partners was the latest to do so this morning, closing a $262 million fund. “Crossover” investors have helped fuel a number of startups’ drive to the IPO queue, but we’ll see if they keep at it if the quick rewards are no longer there. Many in the industry say that even with all the drug pricing talk in Washington, which promises to grow louder in an election year, the fundamentals of biotech haven’t changed—science is advancing, our understanding of biology keeps improving, and the regulatory environment remains favorable. As Nancy Simonian, the CEO of Cambridge, MA-based Syros Pharmaceuticals, another potential IPO candidate, told Xconomy a few weeks ago:
“We have a better idea about how to translate the science into molecules than we ever did before. We understand more of the underlying molecular basis of disease. And I would say compared to the past, if you’re bringing forward an innovative approach, and you know how to find the right places for that approach, [regulators] are working with you,” she said. “We have all these great breakthroughs that are being made, I just think we have to keep sight of that.”
MyoKardia, meanwhile, is developing small molecule pills for groups of people with common genetic mutations that trigger certain heart diseases. For more on that strategy, its drug candidates, and its partnership with Sanofi, check out this piece.
Third Rock Ventures held 52.67 percent of MyoKardia before the offering. The only other institutions with a greater than 5 percent stake are Fidelity (13.19 percent) and Sanofi (11.22 percent). All told, MyoKardia raised about $75 million in venture funding before its IPO, and had some $73 million in cash on hand as of June 30, filings show.