Seattle-based Omeros is the worst performing initial public offering so far in 2009, and its 36 percent decline in the first two weeks as a public company has cast a shadow over other life sciences companies that may be itching to take the leap.
Omeros (NASDAQ: OMER) closed at $6.45 a share yesterday, a steep drop from its IPO price of $10 a share on October 8. The 36 percent decline makes Omeros the worst performer of all the 42 companies that have gone public in the U.S. this year, according to rankings from Renaissance Capital. No other biotechnology company is scheduled to attempt an IPO in the next three weeks, according to the Renaissance Capital calendar.
The Omeros IPO was noteworthy for many reasons. It was the first pure development-stage biopharmaceutical company to go public since Sunrise, FL-based BioHeart in February 2008, and the first technology company from Washington state to do it since Kirkland, WA-based Clearwire in March 2007. Omeros, the developer of an anti-inflammatory treatment to help patients recover from knee surgery, ended up strengthening its financial future by pocketing $62.1 million through the transaction—but unless the stock price turns around, there may not be many more biotech companies fortunate enough to reward its investors and employees this way. Omeros doesn’t have anything it can say for itself, since the “quiet period” that prohibits public statements about its business extends until Nov. 16.
“The next [pharmaceutical IPO] really has to trade well,” says Michael Butler, the CEO of Seattle-based Cascadia Capital, an investment bank. “The market for healthcare can’t absorb two hits in a row like that.”
The Omeros performance probably reflects more on investors’ uncertain appetite for biopharmaceutical companies or healthcare than on any broader disinterest in IPOs, Butler says. Of the 42 IPOs this year, more than half of them (23) have generated positive returns so far, according to the Renaissance Capital rankings. A pair of Chinese companies, Duoyuan Global Water (NYSE: DGW) and Changyou.com (NASDAQ: CYOU), are the best performers so far this year, while Austin, TX-based SolarWinds (NYSE: SWI) has been a bright spot in the tech sector with a 54 percent gain in its stock price since it went public in May. (Interestingly, SolarWinds isn’t a cleantech company as its name might suggest, but an enterprise network software maker.)
The groan you hear is from biotech CEOs who are trying to raise capital to keep navigating their experimental drugs through the risky, expensive clinical trial process required to win FDA approval to start selling a product. Investors have lowered their tolerance for this type of risk, and are increasingly relying on price-to-earnings or price-to-sales ratios that don’t favor biotechnology, according to a Thomson Reuters survey from July that was cited recently by the Biotechnology Industry Organization.
That survey covered investors who control $2.3 trillion worth of assets, including $266 billion in healthcare and $76 billion in the biotech sector. It is being used by the BIO to lobby for more federal assistance to small biotechs. If I hear any serious rumblings that such a thing has a snowball’s chance in Congress, I’ll be sure to follow up on these pages. Until then, a lot of biotechies are going to have to hope that the private investment markets do a U-turn for biotech.