Biotech financing took off – at long last – in the spring of 2003 and raced through 2004 near top speed. In 2004, the sector raised nearly $21 billion in new capital -- the fifth straight year that it’s broken the $10 billion barrier and the second-richest haul in history. As well, the IPO window opened in the fall of 2003: By the end of 2004, 38 biotech and specialty pharmas had made their public debuts in the U.S. and 17 more firms had completed IPOs on non-U.S. exchanges. Will the window remain open long enough to allow the 16 IPO hopefuls in registration to price their shares? Or has this financing spree nearly played itself out?
Yee hah – what a great year 2004 turned out to be for biotechnology and specialty pharma companies. Not only did these firms bring to market a whole slew of important new medicines, but also they managed to raise tons of money from enthusiastic investors – making it the industry’s second-best financing year in history.
All told, the sector raised $20.8 billion in new financing in 2004 (not counting revenues and payments coming from corporate collaborations). That’s up about 19 percent from the $17.5 billion raised in 2003 and nearly double the $10.9 billion raised in 2002.
This marked the fifth year in a row that financing has topped the $10 billion mark, and hopefully it won’t fall below that level again. For even $10 billion is not enough to sustain all the companies in the biotech sector – as we clearly saw in 2002, which was an excruciating year for many. Investors, burned by the genomics bubble, turned their backs on biotech, and what ensued was a bear market that lasted into the spring of 2003. It was so severe in 2002 that 10 companies went bankrupt, 26 fell out of compliance with Nasdaq listing requirements and 68 were forced to restructure, often making deep cuts in order to conserve what little cash they had on hand. (To read more, please refer to the Signals article, “The Year Of The Bear.”)
Still, financing did pick up again – and it’s been on the rise ever since. The question remains: When will this peak crest? For, if there’s one major lesson to be gleaned from the biotech industry’s history, it’s the fact that biotech financing runs in cycles.
If you examine the sector’s financing history since 1987, you’ll find that three years out of the last 15 have signified the high points: 1991, 1996, and 2000.
However, the actual financing windows (or peaks) don't fit neatly into December-based calendar years: The 1991 window actually spanned about five quarters, from the first quarter of 1991 through the end of the second quarter of 1992. The 1996 window started in June 1995, and continued through June 1996. And the 2000 window-to-end-all-windows started in November 1999 and continued through the fourth quarter of 2000.
Given those statistics, it appears that the peaks, which span 4-5 quarters, are separated by valleys that last 12-13 quarters. Based on this pattern, one would predict that the next window wouldn’t have occurred until the beginning of 2004.
But clearly, that was not the case, for financing took off midway through the second quarter of 2003. Perhaps the cycles’ periodicity has changed, shortening the valleys from 12-13 quarters to about 9 quarters and lengthening the peaks – the current one has already spanned about 7 quarters, longer than the norm of 4-5 quarters.
As with previous financing windows, the current one was chock full of IPOs. In the 1991-1992 window, for instance, 68 companies completed IPOs. In the 1995-1996 window, an additional 52 biotech firms came public. In the 1999-2000 window, 72 companies made their public debuts. And in the current window, 38 companies have completed IPOs in the U.S. market, from September 2003 through December 2004.
The latest crop of IPOs is unique in the fact that nearly every company is clinically focused (and many of them are bona fide specialty pharmaceutical companies). In fact, 87 percent (33/38) of the companies that priced IPOs between September 2003 and December 2004 have products that are in some stage of clinical development, and a few have medicines that are already on the market. (For details, see the tables in this article.)
Compare that with the genomics-heavy IPO class of 1999-2000: In that case, a mere 28 percent of the newly minted companies had already developed clinical-stage drug candidates.
IPO Class Of 2003-2004
|
Company
|
Gross Proceeds (IPO Date)*
|
IPO Price Per Share
|
Share Price On 12/31/04
|
Percent Change From IPO Price
|
Business Focus
|
|
ACADIA Pharmaceuticals
(ACAD)
|
$35.0M
(5/26/04)
|
$7.00
|
$6.77
|
-3%
|
CNS disorders
|
|
Acusphere
(ACUS)
|
$52.5M
(10/7/03)
|
$14.00
|
$6.13
|
-56%
|
Improved formulations of existing drugs
|
|
Adeza Biomedical
(ADZA)
|
$69.0M
(12/10/04)
|
$16.00
|
$17.51
|
+9%
|
Diagnostics for women’s reproductive healthcare
|
|
Advancis Pharmaceutical
(AVNC)
|
$60.0M
(10/16/03)
|
$10.00
|
$3.82
|
-62%
|
Infectious diseases
|
|
Alnylam Pharmaceuticals
(ALNY)
|
$34.5M
(5/27/04)
|
$6.00
|
$7.47
|
+25%
|
RNA interference-based therapeutics
|
|
Anadys Pharmaceuticals
(ANDS)
|
$49.0M
(3/25/04)
|
$7.00
|
$7.49
|
+7%
|
Viral & bacterial infections
|
|
Auxilium Pharmaceuticals
(AUXL)
|
$41.3M
(7/23/04)
|
$7.50
|
$8.85
|
+18%
|
Urologic & sexual health disorders
|
|
Barrier Therapeutics
(BTRX)
|
$75.0M
(4/28/04)
|
$15.00
|
$16.60
|
+11%
|
Dermatological diseases
|
|
CancerVax
(CNVX)
|
$72.0M
(10/29/03)
|
$12.00
|
$10.85
|
-10%
|
Cancer
|
|
Corcept Therapeutics
(CORT)
|
$54.0M
(4/14/04)
|
$12.00
|
$6.25
|
-48%
|
Psychiatric & neurological diseases
|
* Includes proceeds from overallotment (full or partial), if applicable.
The 2003-2004 IPOs performed admirably in the market, too. On the last trading day of 2004, these 38 stocks had risen an average of 17 percent above their IPO prices – beating the AMEX Biotech Index, which gained 11 percent over the course of 2004, as well as the Nasdaq Composite Index, which rose by 9 percent.
There were some big losers, of course – including Xcyte Therapies Inc., whose stock sank by 66 percent; Advancis Pharmaceutical Corp., whose stock shed 62 percent of its value; and Acusphere Inc., whose stock dropped by 56 percent. But nearly two-thirds (63%) of the newly minted stocks ended the year on a positive note. Several exhibited significant gains, including Pharmion Corp., whose stock rose by 202 percent; NitroMed Inc., whose stock gained 142 percent in value; and Eyetech Pharmaceuticals Inc., whose stock price increased by 117 percent by the end of the year.
IPO Class Of 2003-2004
|
Company
|
Gross Proceeds (IPO Date)*
|
IPO Price Per Share
|
Share Price On 12/31/04
|
Percent Change From IPO Price
|
Business Focus
|
|
Corgentech
(CGTK)
|
$110.4M
(2/11/04)
|
$16.00
|
$8.28
|
-48%
|
Cancer, cardiovascular & inflammatory diseases
|
|
CoTherix
(CTRX)
|
$30.0M
(10/15/04)
|
$6.00
|
$11.92
|
+99%
|
Cardiopulmonary & infectious diseases
|
|
Critical Therapeutics
(CRTX)
|
$42.8M
(5/26/04)
|
$7.00
|
$8.00
|
+14%
|
Respiratory, inflammatory & critical care diseases
|
|
Cytokinetics
(CYTK)
|
$103.2M
(5/26/04)
|
$13.00
|
$10.25
|
-21%
|
Cancer & cardiovascular disease
|
|
Dynavax Technologies
(DVAX)
|
$51.8M
(2/18/04)
|
$7.50
|
$8.00
|
+7%
|
Allergies, infectious diseases & chronic inflammatory
diseases
|
|
Eyetech Pharmaceuticals
(EYET)
|
$157.0M
(1/29/04)
|
$21.00
|
$45.50
|
+117%
|
Ocular diseases
|
|
Genitope
(GTOP)
|
$37.6M
(10/30/03)
|
$9.00
|
$17.04
|
+89%
|
Cancer
|
|
GTx
(GTXI)
|
$78.3M
(2/2/04)
|
$14.50
|
$13.49
|
-7%
|
Men’s health conditions
|
|
Idenix Pharmaceuticals
(IDIX)
|
$64.4M
(7/21/04)
|
$14.00
|
$17.15
|
+23%
|
Viral diseases
|
|
Immunicon
(IMMC)
|
$55.2M
(4/15/04)
|
$8.00
|
$6.98
|
-13%
|
Cancer diagnostics
|
* Includes proceeds from overallotment (full or partial), if applicable.
Given investors’ penchant for backing companies with products in the clinic, it’s not too surprising that the IPO Class of 2003-2004 fared so well. For instance, the striking gains exhibited by Pharmion and Eyetech Pharmaceuticals are directly related to new product approvals in 2004, and NitroMed’s rise was due to stunning Phase III results on its drug candidate BiDil. (For details of product approvals in 2004, see the Signals article, “Winning The Drug-Approval Game: 2004.”)
But investors’ love of product stories, especially coming from specialty pharmas, also spilled over into the private company space. In 2004, venture capitalists poured more than $5.4 billion into private companies in the U.S. and abroad – and 23 percent of that money (nearly $1.3 billion) went to specialty pharma firms. In 2003, by comparison, privately held specialty pharmas attracted slightly less than 18 percent of venture capital.
Indeed, 2004 was a very good year for venture financing – not only did companies in the U.S. and abroad raise about 1.5 times the amount they raised in 2003, but it was the largest yearly haul ever.
In large part, this is due to the specialty pharmas. Because companies with this sort of business model are far down the product development path, investors see them as less of a risk – so they’re willing to donate larger chunks of cash. And in one case we’re talking massive -- $250 million in a series B round for Jazz Pharmaceuticals Inc. in March 2004. But this is the exception: Only one other private company, specialty pharma Reliant Pharmaceuticals LLC, has been able to top this astounding figure with a $252 million Series D round in 2003.
Other specialty pharma financings pale in comparison (as would almost anything), but many of them are still quite handsome – including a $65 million Series C round for AlgoRx Pharmaceuticals Inc. in February; a $63.5 million series D round for EXIMIAS Pharmaceutical Corp. in March; and a $62 million Series A round for JDS Pharmaceuticals LLC in November.
IPO Class Of 2003-2004
|
Company
|
Gross Proceeds (IPO Date)*
|
IPO Price Per Share
|
Share Price On 12/31/04
|
Percent Change From IPO Price
|
Business Focus
|
|
Inhibitex
(INHX)
|
$38.7M
(6/3/04)
|
$7.00
|
$8.04
|
+15%
|
Bacterial and fungal infections
|
|
MannKind
(MNKD)
|
$91.8M
(7/27/04)
|
$14.00
|
$15.75
|
+13%
|
Metabolic & immunologic diseases
|
|
Memory Pharmaceuticals
(MEMY)
|
$40.3M
(4/5/04)
|
$7.00
|
$5.32
|
-24%
|
CNS disorders
|
|
Metabasis Therapeutics
(MBRX)
|
$35.5M
(6/15/04)
|
$7.00
|
$7.25
|
+4%
|
Metabolic & liver diseases
|
|
Momenta Pharmaceuticals
(MNTA)
|
$40.0M
(6/21/04)
|
$6.50
|
$7.06
|
+9%
|
Cardiovascular disease/thrombosis & oncology
|
|
Myogen
(MYOG)
|
$80.5M
(10/29/03)
|
$14.00
|
$8.07
|
-42%
|
Cardiovascular disorders
|
|
Neurochem
(NRMX)
|
$62.5M
(9/18/03)
|
$10.87
|
$17.53
|
+61%
|
CNS disorders & amyloid-related diseases
|
|
New River Pharmaceuticals
(NRPH)
|
$33.6M
(8/5/04)
|
$8.00
|
$14.96
|
+87%
|
Improved versions of drugs for pain and ADHD
|
|
NitroMed
(NTMD)
|
$66.0M
(11/5/03)
|
$11.00
|
$26.65
|
+142%
|
Cardiovascular & inflammatory diseases
|
* Includes proceeds from overallotment (full or partial), if applicable.
For many publicly traded biotech companies, the key to successful fund raising in 2004 was convertible debt financing. All told, 23 firms managed to raise nearly $6.8 billion through debt offerings – accounting for 33 percent of all the money raised by biotech companies from all sources (save corporate partners) in 2004.
In 2003, biotech companies also raised about $6.8 billion through debt financings, but that year 29 firms shared the wealth.
In the last two years, then, we’ve seen that debt financing accounts for the bulk of the new money going into the universe of public companies – greater than the cash raised through the more numerous initial and follow-on public offerings.
Thus, a disproportionately small number of companies are raising a disproportionately large percentage of the cash flowing into the entire sector.
But not every public firm chooses to raise debt, even if it qualifies. Most choose to raise money through private placements to institutional investors or through follow-on public stock offerings. In 2004, 43 companies raised a total of $3.2 billion through follow-on offerings in the U.S. Three of those firms – NitroMed, Pharmion and Santarus Inc. – are members of the IPO Class of 2003-2004, and they wisely took advantage of a receptive marketplace to double-dip.
These days, opportunistic fund-raising is de rigueur – and companies are lining up their shelf registrations in anticipation of selling stock in the months to come.
Shelf Registrations 4Q 2004
|
Company
|
Number Of Shares Or Total $ Value (Date Filed)
|
|
Bioenvision
|
$90M (common stock) (10/04)
|
|
CancerVax
|
$80M (common stock) (11/04)
|
|
Exelixis
|
$200M (common stock, preferred stock, debt securities and warrants)
(10/04)
|
|
Incyte
|
$175M (common stock) (10/04)
|
|
Nabi Biopharmaceuticals
|
$175M (common stock, preferred stock, debt securities and warrants)
(12/04)
|
|
Northfield Laboratories
|
$100M (common stock, preferred stock, depositary shares, debt securities
and warrants) (12/04)
|
|
Point Therapeutics
|
$50M (common stock and warrants) (12/04)
|
|
Seattle Genetics
|
$75M (common stock) (11/04)
|
|
Spectrum Pharmaceuticals
|
$100M (common stock, preferred stock, debt securities and warrants)
(12/04)
|
|
Vion Pharmaceuticals
|
$75M (common stock and warrants) (12/04)
|
|
Vivus
|
$50M (common stock) (12/04)
|
Indeed, biotech and specialty pharmas are starting to gear up for what they predict will be a good first quarter 2005. Not only did 11 companies file shelf registrations in the final three months of 2004, but since the turn of the year, five more firms have set the terms for actual offerings, which could price any day. (For the details, please refer to the Signals article, “Red Herrings And Green Shoes.”)
IPO Class Of 2003-2004
|
Company
|
Gross Proceeds (IPO Date)*
|
IPO Price Per Share
|
Share Price On 12/31/04
|
Percent Change From IPO Price
|
Business Focus
|
|
Pharmion
(PHRM)
|
$84.0M
(11/5/03)
|
$14.00
|
$42.21
|
+202%
|
Hematology & oncology
|
|
PRA International
(PRAI)
|
$68.4M
(11/18/04)
|
$19.00
|
$24.78
|
+30%
|
Clinical R&D services (CRO)
|
|
Renovis
(RNVS)
|
$75.9M
(2/5/04)
|
$12.00
|
$14.38
|
+20%
|
CNS diseases & disorders
|
|
Santarus
(SNTS)
|
$62.1M
(3/31/04)
|
$9.00
|
$9.04
|
0%
|
Gastrointestinal diseases
|
|
Senomyx
(SNMX)
|
$38.7M
(6/21/04)
|
$6.00
|
$8.28
|
+38%
|
Taste receptor-based assays & screens for flavors
& flavor-enhancers
|
|
Tercica
(TRCA)
|
$56.9M
(3/25/04)
|
$9.00
|
$10.00
|
+11%
|
Short stature, diabetes & other endocrine system
disorders
|
|
Theravance
(THRX)
|
$113.2M
(10/5/04)
|
$16.00
|
$17.90
|
+12%
|
Respiratory & infectious diseases
|
|
Xcyte Therapies
(XCYT)
|
$33.6M
(3/16/04)
|
$8.00
|
$2.76
|
-66%
|
Cancer & infectious diseases
|
|
Xenogen
(XGEN)
|
$29.4M
(7/16/04)
|
$7.00
|
$7.00
|
0%
|
In vivo biophotonic imaging system
|
* Includes proceeds from overallotment (full or partial), if applicable.
Things are starting to bubble on the IPO front, too. Specialty pharma EpiCept Inc. filed for an IPO on January 10, followed by small molecule developer Synta Pharmaceuticals Corp. on January 18 -- bringing to 16 the number of offerings in the queue.
And clinical-stage, stem cell company ViaCell Inc., which filed for its IPO in early April 2004, is now on the offerings calendar, scheduled to price on January 21. If it prices on target and on time, it will be the first biotech IPO of the year – and its acceptance by the investment community will reflect current attitudes towards stem cell research.
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