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Financing On Target For A Stellar Year
It’s beginning to look a lot like 2001 – or better. In the first nine months of 2003, biotech companies raised nearly $11.8 billion in new funds (excluding revenues and payments from corporate partners), putting the sector on track for at least equaling – if not topping – the $14.7 billion raised in 2001. We’ve already beat 2002’s total of $10.9 billion for the year and chances are excellent that 2003 will turn out to be the second-best fund-raising year ever.
Importantly, follow-on stock offerings have made a significant contribution to the influx of money in 2003: There have been 25 follow-on offerings so far this year – 15 of them in the third quarter alone – and together they’ve reaped slightly more than $2.1 billion. As well, the sector has already witnessed its first IPO since June 2002, when BioDelivery Sciences International Inc. went public. In mid-September 2003, Canadian CNS-specialist Neurochem Inc., whose shares already trade on the Toronto Stock Exchange, completed its IPO in the U.S., raising a total of $62.5 million (including the greenshoe).
When you add in the fact that the biotech stocks have gained about 45 percent in value (as measured by the Nasdaq Biotech Index) since the turn of the year, the stage is set for a bona fide financing window to blow wide open. Certainly, the dozens of firms that are in registration for follow-on offerings anticipate a window: In the third quarter alone, 27 companies filed shelf registration statements and are now poised to take advantage of a positive market environment.
Shelf Registrations 3Q 2003
|
Company
|
Number Of Shares Or Total $ Value (Date Filed)
|
|
Company
|
Number Of Shares Or Total $ Value (Date Filed)
|
|
Adolor
|
7.5M shares common stock (8/03)
|
|
Introgen Therapeutics
|
$100M (common stock) (8/03)
|
|
Amgen
|
$1B (common stock, preferred stock, debt securities, depositary
shares and warrants) (8/03)
|
|
Kosan Biosciences
|
$75M (common stock) (9/03)
|
|
ARIAD Pharmaceuticals
|
7.5M shares common stock (7/03)
|
|
Meridian Bioscience
|
$60M (common stock, preferred stock, debt securities, depositary
shares and warrants) (9/03)
|
|
AVI BioPharma
|
$75M (common stock, preferred stock and warrants) (9/03)
|
|
NaPro BioTherapeutics
|
6.5M shares common stock and 1M shares preferred stock (8/03)
|
|
Cambridge Antibody Technology
|
$175M (common stock) (7/03)
|
|
Novavax
|
$50M (common stock) (8/03)
|
|
Depomed
|
$60M (common stock) (9/03)
|
|
Nuvelo
|
$50M (common stock, preferred stock and debt securities) (7/03)
|
|
Dyax
|
$40M (common stock, preferred stock, debt securities and warrants)
(7/03)
|
|
OraSure Technologies
|
$75M (common stock, preferred stock and debt securities) (7/03)
|
|
Encysive Pharmaceuticals
|
$50M (common stock) (8/03)
|
|
Progenics Pharmaceuticals
|
2.75M shares common stock (7/03)
|
|
EXACT Sciences
|
$100M (common stock, preferred stock, subordinated debt securities,
senior debt securities and warrants) (9/03)
|
|
Targeted Genetics
|
11.6M shares common stock (8/03)
|
|
Flamel Technologies
|
2M American Depositary Shares (8/03)
|
|
Telik
|
$150M (common stock, preferred stock, debt securities and warrants)
(8/03)
|
|
Gen-Probe
|
$150M (common stock, preferred stock, debt securities and warrants)
(8/03)
|
|
Vical
|
$50M (common stock and preferred stock) (8/03)
|
|
Genelabs Technologies
|
$50M (common stock, preferred stock, debt securities and warrants)
(9/03)
|
|
XOMA
|
13M shares common stock (8/03)
|
|
Hollis-Eden Pharmaceuticals
|
5M shares common stock (7/03)
|
|
ZymoGenetics
|
$150M (common stock) (7/03)
|
|
ILEX Oncology
|
$150M (common stock) (7/03)
|
|
|
|
|
Plus, investment bankers are grooming a new crop of biotech and specialty pharma firms to go public. There are currently more than a dozen companies lined up to price IPOs – and if everything goes according to schedule, four of them should go public by mid-October: CancerVax Corp., Acusphere Inc., NitroMed Inc. and Advancis Pharmaceutical Corp. If these IPOs are well received, then we’re off to the races. (For a complete, detailed list of this year’s U.S.-based public offerings – those still on file as well as those that have priced – see the Signals article, “Eye On Wall Street.”)
Interestingly, all the IPO-hopefuls are product plays: Every one of them has at least one drug candidate in the clinic and several already have marketed products. There’s not a platform company among them – making the character of the coming IPO window distinctly different than previous windows, where platform companies led the charge. If investors are still smarting from their losses incurred after the genomics boom of 2000, then they should welcome these new opportunities, for it’s easier to see how products turn into profits.
Venture investors, too, have tended to favor product plays over the last year or so, but that doesn’t mean that platform and technology companies are out of luck. Au contraire, VCs have pumped significant amounts of cash into a number of drug discovery startups this year. For instance, San Diego-based Kémia Inc., which is developing small chemical scaffolds for use as drugs that selectively modulate protein-protein interactions, raised $19 million in Series A financing that closed in August.
And Piramed Ltd., of London, raised $13.2M in a Series A in July. The cancer therapy firm has licensed rights to inhibitors of the P13-kinase superfamily from its founding institutions, including the Ludwig Institute of Cancer Research, and its collaborative partner Yamanouchi Pharmaceutical Co. Ltd.
Most recently, Ambrx Inc. attracted $12.5 million in Series A financing. This San Diego-based startup was founded around technology developed by Peter Schultz and his colleagues at The Scripps Research Institute. Basically, the researchers have devised a way to genetically engineer proteins with new, chemically modified amino acids, opening the way for a class of protein therapeutics with unique physical, chemical and pharmacological properties. According to Troy Wilson, Ambrx’ chief business officer, the company’s long-term strategy is to “improve on existing [protein] therapeutics as well as develop novel molecules.” But in the near future, Ambrx intends to work on known entities, molecules “with solid clinical and preclinical data” that will demonstrate proof of principle, he explained. Protein medicinal chemistry “is a new technology. We will have to prove to the industry that it’s as good as we say it is.”
There were some other big venture rounds in the third quarter, too, including Myogen Inc.’s $40 million Series D expansion round (upping the total for this round to $106.4 million) – which the cardiovascular disease-oriented company closed the day before it filed for an IPO in late August. And Renovis Inc., a clinical-stage company that is developing drugs for neurological diseases, reaped $45 million in a Series E financing in August. IPO hopeful Tercica Inc. also used its latest venture round – a $44 million series B completed in July – as a jumping off point. The firm, which licensed its late-stage product candidate from Genentech Inc., filed for an IPO in mid-September.
Despite these impressive individual rounds, however, venture financing is down 18 percent from the year-ago period. Nonetheless, that’s a slight improvement from what we saw at the end of June, when venture financing was 30 percent lower than it had been for the comparable six-month period in 2002.
Convertible Debt Financings 3Q 2003
|
Company
|
Money Raised (including overallotment, if applicable)
(Date)
|
Term
|
Conversion Price/Share
|
Annual Interest Rate
|
|
Alkermes
|
$125M
(8/03)
|
20 year
|
$13.85
|
2.50%
|
|
AtheroGenics
|
$100M
(8/03)
|
5 year
|
$15.34
|
4.50%
|
|
Chiron
|
$500M
(7/03)
|
30 year
|
$68.44
|
1.625%
|
|
Ciphergen Biosystems
|
$30M
(8/03)
|
5 year
|
$9.19
|
4.50%
|
|
Indevus Pharmaceuticals
|
$72M
(7/03)
|
5 year
|
$6.66
|
6.25%
|
|
Invitrogen
|
$350M
(7/03)
|
20 year
|
$68.24
|
2.00%
|
|
Medarex
|
$125M
(7/03)
|
7 year
|
$6.72
|
4.25%
|
|
MedImmune
|
$500M
(7/03)
|
20 year
|
$68.18
|
1.00%
|
|
OSI Pharmaceuticals
|
$135M
(9/03)
|
20 year
|
$50.02
|
3.25%
|
|
Protein Design Labs
|
$250M
(7/03)
|
20 year
|
$20.14
|
2.75%
|
|
QLT
|
US$172.5M
(8/03)
|
20 year
|
US$17.80
|
3.00%
|
|
Quintiles Transnational
|
$450M
(9/03)
|
10 year
|
N/A
|
10.00%
|
|
Serologicals
|
$130M
(8/03)
|
30 year
|
$14.79
|
4.75%
|
But everything else is definitely up. Public offerings, as we mentioned earlier, garnered close to $2.2 billion over the first nine months of 2003, a gain of 151 percent from the year-ago period.
The biggest chunk of change, however, went to those public companies that raised money through private placements and debt offerings. By the end of September, these offerings had infused more than $7.3 billion into the biotech sector – a 34 percent jump from the year-ago period.
Not surprisingly, the bulk of that money came from debt offerings, which (contrary to our predictions at the end of June) stayed strong throughout the summer and into September. All told, 26 companies raised greater than $5.4 billion from debt offerings between May and September. That constitutes 74 percent of all the cash raised by public companies in private offerings and nearly half – 46 percent, to be exact – of the total amount of money raised by all companies in all financings for the first nine months of 2003. (See the Signals article, “Biotechs Finally Grab The Brass Ring,” for details of the debt offerings that occurred in May and June.)
There’s no doubt that $5.4 billion is a lot of debt to carry – but as long as stock prices keep rising, those companies that raised money through convertible offerings ought to be in good shape. Rising stock prices ought to make it easy for already-public biotechs to raise more money through follow-on offerings, too.
But will investors warm up to the IPOs that are waiting in the wings? According to Paul Abel, a portfolio manager at Kinetics Medical Fund, the companies that have filed for IPOs are “far enough along in clinical trials that they can capture decent money from the public markets.” They obviously won’t raise enough money from an IPO to support the full cost of clinical trials (which is generally quoted as being about $800 million), but they should be able to get the funds necessary to “get to the next milestone,” he said.
Four of the IPO hopefuls – Xcel Pharmaceuticals Inc., Pharmion Corp., Advancis Pharmaceutical and Acusphere – bill themselves as specialty pharmaceutical companies, an extremely popular business model at the moment. These companies generally acquire late-stage products or develop new formulations of existing products – a strategy that should remove much of the risk from drug development and cut the time to market. However, although “niche markets might provide a nice revenue stream,” these products are not usually first-in-class or life-saving in nature. Thus, “it can take up to 30 months for the FDA to approve a product,” Abel said. So even this business strategy doesn’t guarantee instant profitability.
Standish Fleming, managing member at Forward Ventures, also “definitely sees signs of an IPO window.” (In fact, several of Forward Ventures’ portfolio companies – CancerVax and Acorda Therapeutics Inc. – are currently in registration.) “Bankers are actively looking for companies to go out. That’s the strongest indication. The likelihood of a window opening is high.”
Importantly, “All these companies have products in the clinic,” he added. “This IPO window is significantly different than the window of 2000. The product-based model is a more robust and sustainable business model.”
An open window will, obviously, benefit the VCs, too. “It will have a tremendous impact on the industry if we can get some liquidity” for the later-stage venture-backed companies, Fleming said. “Private companies look to a window to take some pressure out of the market as mezzanine-stage companies go public. That creates a space for the earlier-stage companies to move up. Right now the private markets are locked out. They won’t start to improve” until the IPO window opens. And, he added, “Venture groups clearly will push their best companies” to find investment bankers willing to take them public.
originally published 10/02/2003 |