U.S. activity for biotech IPOs picks up in the second quarter

Print 08 July 2016
Peter Winter / BioWorld

After a slow start to the year, IPO activity for biotech companies picked up with 11 graduating to the public arena.

However, the total amount raised was lower than the first quarter haul with most companies in the second quarter pricing their offerings within or below their ranges, and precious few transactions generated enough support to push above their original expectations reflecting the fact that the financial markets still remain volatile.

On the final day of June, Cambridge, Mass.-based Syros Pharmaceuticals Inc., for example, generated $50 million from its IPO by offering 4 million shares at $12.50, below its planned pricing range of $14 to $16. However, the company, which is developing gene expression therapies based on noncoding DNA research, received a warm first day market welcome with its shares (NASDAQ:SYRS) jumping 45 percent to close at $18.15.

Investors were impressed with the company, which is working on an understanding of the region of the genome controlling the activation and repression of genes. Its stated goal is "to advance a new wave of medicines to control the expression of disease-driving genes." Its lead product, SY-1425 (tamibarotene), a selective agonist to retinoic acid receptor alpha (RAR-alpha), is expected to be tested in a phase II trial later this year. (See BioWorld Today, Jan.14, 2016.)

The company is able to manipulate gene "switches" and pinpoint those patients with the best chances of benefiting from drugs that do so. In the case of SY-1425, which will be tested in a genomically defined subset of patients with acute myelogenous leukemia and myelodysplastic syndromes, Syros discovered a cancer dependency to RAR-alpha and a biomarker to identify patients with that dependency who may respond to agonist therapy.

A phase I/II trial on another drug candidate, SY-1365, initially targeting acute leukemia, is planned for the first half of next year.

The market reaction to the Syros offering is in keeping with the overall sentiment toward IPOs, according to Renaissance Capital, a global IPO investment advisor, which sees that the U.S. IPO market is beginning to normalize once again in the second quarter following one of the slowest quarters for IPOs in seven years.

During the current period, Renaissance recorded 33 IPOs being completed, raising $5.5 billion. That number was still well below average levels of IPO activity "as the June 23 Brexit vote and concerns about a potential U.S. interest rate hike caused companies to push deals into the third quarter," it noted.

Another finding was that despite the uncertainty, IPO returns for investors were positive: 10 percent for all IPOs and 24 percent for IPOs that raised $100 million or more, compared with a performance of -1 percent for the S&P.

Renaissance Capital found that for the eighth consecutive quarter, health care accounted for the most IPOs – 14 of the 33 IPOs (42 percent).

BY THE NUMBERS

According to BioWorld Snapshots, 11 companies completed their IPOs in the second quarter, raising a total of $556 million at an average of $50 million, compared with six companies that completed their IPOs in the first quarter generating approximately $560 million at an average of $92 million per transaction.

The 17 biotech IPOs in the first half of the year was 43 percent lower than the total of IPOs that were completed in the first half of 2015, demonstrating how dramatically the market conditions have changed in the space of 12 months. The 2015 IPO graduates raised a total of $3 billion from their offerings at an average of $100 million per deal.

However, in terms of collective market performance, the 2016 IPO graduates have performed much better so far, this year averaging an approximate 12 percent increase in value compared with the 2015 group whose average share values have fallen 28.5 percent.

Among the leading share price gainers year-to-date in the 2016 group is Reata Pharmaceuticals Inc., whose shares (NASDAQ:RETA) have climbed 80 percent from its May IPO price of $11. The company raised $69 million from its offering. (See BioWorld Today, May 27, 2016.)

The funds will be used to advance its lead antioxidant inflammation modulator (AIM), bardoxolone methyl, through a phase III trial in pulmonary hypertension and additional phase II programs. Another AIM, omaveloxolone, a close structural analogue of bardoxolone methyl, will also be moved through an ongoing randomized, placebo-controlled phase II study, known as Moxie, which is evaluating that candidate's safety and efficacy in patients with Friedreich's ataxia.

Chicago-based Avexis Inc. performed even better, with the company's shares (NASDAQ:AVXS) jumping 90 percent since it completed its upsized IPO in February, pricing 4.75 million common shares at $20 each – the midpoint of its intended range – to raise $95 million. (See BioWorld Today, Feb. 12, 2016.)

The gene therapy company is advancing its lead compound, AVXS-101 in spinal muscular atrophy (SMA). In May, it reported results from an interim analysis of data of the ongoing phase I trial of AVXS-101, which showed the gene therapy appeared to reduce the need for ventilation support and allowed patients to successfully recover from respiratory illnesses that are often lethal to SMA type 1 patients.

The trial has fully enrolled with a total of 15 patients who met enrollment criteria of diagnosis of SMA type 1 before 6 months of age, with two copies of the SMN2 backup gene, as determined by genetic testing.

Not all companies have performed well since their first day debuts this year. Aeglea Biotherapeutics Inc., of Austin, Texas, for example, has seen its shares tumble 51 percent since it completed its IPO in April. The company raised $54 million – a total that included the partial exercise by the underwriters of their option to purchase an additional 481,940 shares of common stock. The firm bumped up the number of shares from 3.5 million to 5 million shares at $10 each to offset the below-range pricing – it previously set a $16 to $18 range.

The funding is being used to fund development of AEB1102 in arginase I deficiency, including a planned phase I trial in the U.S. and a phase II trial in Europe, as well as development of the drug in solid tumors.

Aeglea's stock (NASDAQ:AGLE) closed Friday at $4.85, down 1 cent.

IPO OUTLOOK

Including Aeglea, seven of the 2016 biopharma companies completing their IPOs have seen their shares fall below their first day pricing. The positive performance of the other eight that have listed this year may be just enough evidence to persuade the 17 companies waiting on the IPO runway to test the waters. From the uptick in the values of biotech equities at the close of the second quarter, it appears that the shock of the Brexit vote is now wearing off and investors are returning to the sector.

If the markets continue to improve, it is likely that we will see up to 10 additional biotech IPOs being completed before the end of the year. That won't make for a great final annual total for those offerings compared to previous years but will certainly be better than might have been hoped for given the mediocre start for IPOs in the first quarter.

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