Biotech IPO Class of 2011 Takes Drubbing

by: The Burrill Report

by Daniel S. Levine

The dramatic gyrations of the stock market sparked by the battle in the U.S. Congress and the credit rating agency Standard & Poors’ downgrade of the United States’ credit rating has delivered a drubbing to biotechs that have gone public in 2011.

While the overall biotech sector is down during the past two weeks—the Burrill Biotech Select Index fell 9.3 percent since the end of July—life sciences IPOs from this year are down nearly twice that amount falling 17.7 on average during the same period. By comparison, the Dow Jones Industrial Average dropped 7.2 percent in the month to date as of August 12 and the Nasdaq Composite Index fell 9 percent.

It’s been a difficult few weeks for the biotech sector overall. Looking at a universe of 369 life sciences stocks with closing prices of $1 or more at the close of trading August 12, 338 of them fell from their close on July 29, 2011, while only 21 posted gains. Ten stocks remained unchanged. The combined market cap for these companies fell 9.6 percent.

But as investors look at the performance of the IPO class of 2011 to gauge whether they should be purchasing shares in companies going public, the group not only has lost greater ground than other life sciences companies during the past two weeks, but moved into negative territory overall after posting a positive return as a group through the end of July.

Of 16 life sciences IPOs this year, as of July 29, 11 of the stocks were above their initial offering price. As of August 12, only 5 remained above their initial offering price. The combined market cap of these companies has fallen 20.2 percent during the period to $6.6 billion, a loss in two weeks of nearly $1.7 billion dollars.

Among the hardest hit stocks since the end of July have been bioindustrial players including Gevo (down 35.9 percent), Solazyme (down 31.4 percent), and KiOR (down 23.5 percent). The biggest loser on the list is the digital health company Epocrates (down 36.1 percent).

This should not be terribly surprising as market commentators talk about a flight to quality, but it will be telling to see if this group of stocks can recover in the next two months should markets stabilize. If not, hopes for IPO activity in the sector picking up during the remainder of the year could become dashed.

Disclosure: No positions