2011 ended with 10 IPOs, most of which took place at the beginning of the year. 2012 kicked off with 6 IPOs so far, with almost 8 queuing in the IPO pipeline. Perhaps the encouraging start to the year marks an optimistic period where the US macroeconomic environment will finally align with the positive biotech vibe? The majority of the 1Q 2012 IPOs were quite successful. Having invested in those, an investor would have gained an average yield of ~41% in ~4 months, which would amount to an annual yield of 120%!
IPO - first day
6.27.12 stock price
Greenway Medical Technologies
- Supernus Pharmaceuticals, which had an IPO in the first quarter of '12, develops treatments for epilepsy and other central nervous system disorders. Its lead candidate is a once-daily, extended-release oral epilepsy drug developed from topiramate, an existing immediate-release drug that is administered multiple times daily. Another candidate, Epliga, is a similar epilepsy treatment developed from another immediate-release drug, oxcarbazepine. Both candidates are in late-stage development; other pipeline products include treatments for attention deficit hyperactivity disorder [ADHD].
- Merrimack Pharmaceuticals takes a technological approach to fighting cancer. A biopharmaceutical company, Merrimack develops oncology drugs using its proprietary Network Biology technology, which combines biological data and computer-based modeling to discover and develop candidates. The company has four candidates in clinical stage development, including a chemotherapy drug to treat pancreatic and gastric cancer and antibody therapies designed to inhibit the growth of cancerous cells. It also has a fifth candidate in its pipeline in preclinical stages of development.
- Verastem believes the truth behind recurrent tumors lies in cancer stem cells [CSCs], aggressive tumor cells that survive conventional treatment to cause recurrence. Those CSCs are the target of its biopharmaceutical R&D efforts; the company is working to produce small molecule drugs that target the cells while conventional therapy targets the rest of the tumor. Verastem's work rests on a technology, licensed from MIT's Whitehead Institute, which allows it to create stable CSCs in the lab, something not possible in the past. Its leading drug candidate targets a type of breast cancer with a low survival rate. The company is also developing CSC diagnostics.
- ChemoCentryx is a biopharmaceutical company focused on discovering, developing and commercializing orally-administered therapeutics to treat autoimmune diseases, inflammatory disorders and cancer. The Company targets the chemokine system, a network of molecules, including chemokine ligands and their associated receptors, as well as related chemo-attractant receptors, all of which are known to drive inflammation. As of December 31, 2011, the Company had four drug candidates in clinical development.
- Cempra is a development-stage and clinical-stage pharmaceutical company focused on developing antibiotics to meet medical needs in the treatment of bacterial infectious diseases, particularly respiratory tract infections and chronic and acute staphylococcal infections. Its program CEM-101 is developing in both oral and intravenous [IV], formulations initially for the treatment of community-acquired bacterial pneumonia [CABP]. Its second program is Taksta, which is developing in the United States as an oral treatment for bacterial infections caused by Staphylococcus aureus (S. Aureus), including methicillin-resistant S. aureus [MRSA]. As of January 30, 2012, the Company completed a Phase II clinical trial in, which the oral formulation of CEM-101 demonstrated comparable efficacy to the levofloxacin. As of January 30, 2012, its second program Taksta has completed a Phase II clinical trial in patients.
- The last company is a medical services company; Greenway Medical Technologies provides doctor-centered software and services designed to integrate the clinical and business sides of physician practices. Its Web-based Prime SUITE software is used to automate practice management, electronic health records [EHR], and managed care functions, as well as to link patient chart records to billing processes.
Looking forward, we can see that the 2012 IPO pipeline is starting to fill rapidly. Eight noteworthy IPOs will be:
- OncoMed - This development-stage biotech company hopes to produce pharmaceuticals that target cancer cells. Its work is focused on cancer stem cells [CSCs], which are believed to be the root cause of cancer tumors. Traditional chemotherapy may kill the tumors but leaves the CSCs to grow more tumors. OncoMed's antibody drugs target both CSCs and the tumors they produce. OncoMed has some of the biggest partners in the business, which has helped fund the company since it was founded in 2004 (GSK, Bayer). OncoMed may find a cool reception among investors. Like Tesaro, OncoMed has no products, and it doesn't have any pivotal trials to whet investors' interest. It is, though, focused on a hot field in cancer drug development; a story line that has buoyed startups like Verastem, mentioned before, one of a few successful IPOs this year.
- Radius Health would like to banish the fear of Grandma falling and breaking a hip. The biopharmaceutical company targets osteoporosis and other women's health concerns through the development of new drugs. Its leading candidate is a synthetic version of a naturally occurring, human bone-building protein.
- Globus Medical makes medical devices used during spinal surgery to treat a variety of spinal disorders and assist surgeons with different types of spinal procedures, from screws and plates to disc replacement systems and biomaterials for bone grafts.
- KYTHERA Biopharmaceuticals is developing an injectable drug used to reduce submental fat, which can cause what is colloquially known as a "double chin." The company is seeking to commercialize the drug, currently in clinical stage development, in the US and Canada.
- Hyperion Therapeutics is a pharmaceutical company developing Ravicti, a drug to treat urea cycle disorders [UCD] and hepatic encephalopathy [HE], both characterized by high levels of ammonia in the blood. Hyperion hopes Ravicti, which has completed Phase III trials for UCD, will be at the pharmacy sometime in 2013. In anticipation of this, the company filed an initial public offering seeking up to $57.5 million in 2012.
- Stemline, a development-stage biopharmaceutical pipeline includes a handful of trial-stage treatments for leukemia and brain cancer in children and adults. Its drugs work by targeting CSCs, which are believed to be the seeds of tumors that often survive traditional cancer treatment. Stemline is part of the biopharma race to be the first to successfully kill CSCs and usher in a new era of cancer drugs. Once its candidates are approved, the company intends to create an in-house sales and marketing team for North America and Europe.
- Durata Therapeutics has filed paperwork for an $86 million initial public offering. The NJ-based developer has no products on the market but has high hopes for its late-stage antibiotic for skin infections, dalbavancin, which was licensed from drug giant Pfizer.
- Tesaro has put together an SEC filing that makes one essential promise. In less than a year, the developer boasts, it in-licensed rolapitant and pushed the cancer treatment into a Phase III study. Tesaro, though, has a set of negatives: No product revenue, high-risk R&D work, and only a two-year track record. That's been more than enough to chill the average investor on biotech IPOs over the past three years. It should be interesting to see if their formula for success can bridge troubled market waters to a successful IPO.
We believe that after nearly three years of dormant IPO activity, a positive vibe is re-emerging amongst biotech companies. Two main factors are responsible:
- Economies of scale - In the last couple of years, M&A transactions have been made in larger scales with later stage biotech companies. For development-stage companies, the late stage goal is not easy to achieve. Phases 2 or 3 are highly expensive, which leaves IPOs as the main source for capital raising.
- Marco vibe - the US economy is exhibiting modest growth, in relation to EU or other markets which give a boost to biotech economy. Furthermore, in our opinion, the Obamacare "shock waves" will affect the entire healthcare sector by governmental reimbursement of a wider range of medical services and drugs.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.