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Biotech IPO pace stirs bubble chatter

  • Another eight biotechs IPOs raised a combined $502M last week - a new weekly record for the sector amid a rise in the Nasdaq biotech index (IBB) of 70% over the past year. The hot market has companies coming to market at earlier stages of drug development and - in the case of Dicerna Pharmaceuticals (DRNA -2%) which tripled on its first day of trading - without typical restrictions on insiders quickly cashing out.
  • Dicerna has yet to enter clinical trials for its liver disease and cancer drugs which typically means less than a 5% chance of them ever coming to market, according to industry analysts. Moreover, the prospectus says majority shareholders are under no lock-up restrictions. “I’ve never seen an IPO in my career where the existing [majority] shareholders . . . were not subject to a lock-up,” says one expert in the business who notes other firms are inquiring about following the Dicerna example. “A 180-day lock-up is one of those check-the-box provisions for investors," says Skadden Arps' Michael Zeidel.
  • The underwriters defend the arrangement, noting insiders bought about 50% of the IPO, and not having a lock-up should help with trading liquidity.
  • The market may already be stretched - of 14 companies listing so far this year, six are currently below their IPO price.
  • Biotech ETFs: IBB, XBI, BIB, BBH, FBT, PBE, BIS
Comments (5)
  • embryorambo
    , contributor
    Comments (241) | Send Message
     
    No bubble at all, market clearly feels the index is highly undervalued
    10 Feb, 04:35 PM Reply Like
  • Ziggle
    , contributor
    Comments (4) | Send Message
     
    Haha I just laughed. You should review your financial basics, and look over some key ratios in biotech companies before you say that. When we forget about the basics, that's exactly when bubbles happen.
    10 Feb, 06:08 PM Reply Like
  • omarbradley
    , contributor
    Comments (966) | Send Message
     
    oh look! cure for cancer!
    10 Feb, 05:10 PM Reply Like
  • Value Plus Incentives
    , contributor
    Comments (78) | Send Message
     
    Junior miners and biotech have a lot in common. Both companies use public capital to make out-sized, long-shot, go rich or go home bets, and repeatedly tap public equity markets to fund their exploration budgets. Sometimes their cost of capital is insanely low (like now for biotech) when the public fails to demand the appropriate risk premium. And, this works until it doesn't. Check out the junior gold miners performance in 2012- 2013, and you can probably get a pretty good read on where this latest biotech frenzy will eventually end up.

     

    10 Feb, 08:38 PM Reply Like
  • Mercury Value
    , contributor
    Comments (565) | Send Message
     
    Good post. I note too, that at least the mining industry is easy enough to understand. I'll be damned if I can make heads or tails of some of the names of these "miracle drugs," much less the science behind it. If I can't understand it, it goes in the "too hard" pile for me.
    10 Feb, 09:30 PM Reply Like
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