Analysts fret as market turbulence threatens biotech IPO market

Print 27 August 2015
John Carroll / FierceBiotech

The tremors reverberating through the stock market on Monday left a score of biotechs big and small shaken, alarmed and bruised by the end of the day. But the avalanche of share prices that started early retreated later in the day as the experts weighed in on the long-term implications.

Celgene ($CELG) was an early bellwether stock, with the $90 billion biotech seeing its shares drop 21% and then come back to wind up down 4.76%. In premarket trading this morning the stock is up 3.55%, bringing it back to near break-even after a 24-hour roller coaster ride. The closely-watched Nasdaq biotech index ended the day down about the same amount as Celgene, as (most) investors and traders breathed a sigh of relief as the threatened tsunami failed to hit.

One of the big questions in the industry this morning is what lies ahead for new biotech IPOs after three years of some gangbuster market debuts. Mirna Therapeutics in Texas joined the queue on Monday, but genomics outfit RainDance Technologies pulled their offering, citing market conditions and spooking some of the analysts covering the market.

"We've gotten through turbulent times before and gotten right back on track," Ernst & Young partner Jackie Kelley tells the Wall Street Journal. "But now you're dealing with some big macroeconomic issues."

Kelley's prediction: Companies which have announced plans to go public will move ahead, and everyone waiting on the sideline will stay there for awhile.

Others are taking more of a wait-and-see approach on whether the IPO window--particularly for risky tech stocks--just slammed shut.

"If the market just has a couple of days' shock and then stabilizes, then I don't think anybody's plans will change. But if we see a worse sell-off and the volatility stays high, then I think companies are going to hold off," Wedbush analyst Gil Luria tells USA Today.

The worst-case scenario was left to University of Florida Professor Jay Ritter: "With last week's mayhem and today's drop you can expect IPO activity to grind to a complete halt," he tells Reuters. "The IPO market is always hyper sensitive to market movements; and you can expect it to dry up when it falls."

One of the big questions of the year is whether the big runup in IPO prices, which saw a questionable single-asset company like Axovant emerge instantly with a $2.2 billion valuation ($AXON is now trading at half its opening-day high), was a sign of a market bubble swelled by market touts or a sustainable bull market for a reenergized industry advancing important new technologies.

In its recently released H1 review, Evaluate Pharma noted that the overall value of biotech IPOs had slipped considerably in the first half of the year when compared to a red-hot 2014. But most came in at only a slight discount to the listed range, with stocks rising 23% after the open, close to the same experience as investors saw a year earlier.

So far, the market overall is showing considerable resilience. But the jury's still out on just how long that will stay true.

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