THIRD WORLD NETWORK BIOSAFETY INFORMATION SERVICE
12 November 2003
Dear friends and colleagues,
RE: BIOTECH IPOs SEE BOOM BUT PERFORMANCE DISAPPOINTING
The past month has seen a rise in initial public offerings in the biotechnology sector, a boom not seen in three years. However, the performance of the newly listed companies has been lacklustre as investors are reluctant to put their money in businesses that have yet to show a profit.
Read the report in the Financial Times for more details.
With best wishes,
Lim Li Lin and Chee Yoke Heong
Third World Network
121-S Jalan Utama
October sees a frenzy of biotech IPOs
By Elizabeth Wine in New York
Financial Times; Nov 10, 2003
October was the busiest month in three years for initial public offerings in the biotechnology sector. But the performance of the newly listed companies has been lacklustre as investors proved wary of betting on businesses that have yet to show a profit.
According to data from Thomson/First Call, five biotech deals worth $287.8m were priced last month, the most since November 2000. In that month, $239.8m was raised in five IPOs. The deals are set to continue, with biotech companies accounting for roughly 20 per cent of the backlog of IPOs in registration.
Considerable hype has surrounded the young companies after the robust performance of the sector, which has helped lead the US stock market rally. The American Stock Exchange Biotech Index climbed almost 39 per cent this year. But the most recent debuts have delivered disappointing returns.
The two biotech companies that have come to market this month were both priced near the low end of their range and have since fallen below their issuance price. NitroMed has fallen nearly 19 per cent from its $11 IPO price and Pharmion has shed 7.1 per cent since its debut at $14.
Investors view biotechs as the most speculative category of new issuance. “It’s a craps shoot,” said Ben Holmes, a fund manager who specialises in new issuance at Protege Funds, a US investment firm. “Their work is basically to discover things. That work is not marketable and does not generate any revenue until they have a product that is past human trials and in production. How on earth do you value these companies?” he said.
This helps explain why investors are showing more appetite for lower-tech companies. The biotech IPOs have posted an average first-day gain of 2.5 per cent and an average gain of 2.4 per cent in the aftermarket, according to Thomson/First Call. That compares with first-day returns of 14 per cent for non-biotech IPOs and a 34 per cent gain in the aftermarket.
Bankers specialising in biotech said investors were most interested in companies in the later stages of product development, which were closer to profitability. The deals that have fared worst have been those for early-stage companies, with products far in the future.
Recent deals that are trading above issuance price are all in the late stages of drug development. Genitope has gained 39.4 per cent since its IPO, while Myogen had added 7.9 per cent. CancerVax is up less than 1 per cent from its IPO price.
Kathy Smith, manager of Renaissance Capital’s IPO Plus Fund, said that later-stage companies were far more attractive. But she added: “They keep coming out at lower and lower prices. You can’t ignore the fact that investors want a discount.”