We have all read, including in these pages, that biotech IPOs are dead. Indeed, IPO pricing remains low, keeping returns for insiders to a minimum. The valuations of IPOs make venture capitalist investment in development-stage companies an even more dicey proposition than it was before. But the numbers for biotech IPO investors – at least in 2006 – tell a somewhat different story.
The volume of biotech IPOs was up in 2006, from 16 in 2005 to 21 last year – small numbers, but still a 31% increase. More significantly, after-market returns were up from an average of 7% to almost 40%.
Four of the biotech newbies broke 100% by year end: Omrix Biopharmaceuticals (OMRI) up 203%, Acorda Therapeutics (NASDAQ:ACOR) higher by 164%, Vanda Pharmaceuticals (NASDAQ:VNDA) up 147%, and Osiris Therapeutics (NASDAQ:OSIR) 130% higher (see box). In fact, across all industries, Omrix was #2 overall, Acorda #3, Vanda #6 and Osiris #7, making biotech the strongest sector among the top 10 IPOs of 2006.
Of course, there were a few dogs in 2006, with eight of the 21 IPOs down at year end. The biggest losers were Replidyne (RDYN) down by 43%, SGX of San Diego (SGXP) off 42% (why did they go public?), and Catalyst CPRX) lower by 20%. As mentioned, pricing was a big challenge last year, with almost all the biotech IPOs pricing below their target ranges. If memory serves correctly, only Affymax (NASDAQ:AFFY) hit its target range and rose from there.
In fact, it’s interesting to note the divergence in biotech IPO performance. Either they were way up (26% or more), or down (except for Targacept (TRGT), which was essentially flat). The most recent IPO, Affymax, jumped 36% since its issue on December 15th.
Significantly, the biotech IPOs of 2006 blew away Centient’s CBT200™ biotech index, which was down just under 1% at year end. In fact, if you had invested $1,000 in each of the 21 IPOs, you would have made $8,190 – not a bad return.
So maybe there is a market for biotech IPOs, and 2007 could prove to be the strongest market since before the 2000 bust. Companies with products, revenue and a proven market generated a strong return in 2006. But, if you were weak, the market ate you alive – witness SGX.
If you have put all the pieces together in your biotech company, you might want to go for an IPO this year. Otherwise, you’d better wait, or – if your investors are looking for a quicker return – find a friendly acquirer.
Disclosure: Author has no position in the above-mentioned stocks.