Last year, the initial public offerings market for biotechnology companies was dismal at best. Only seven offerings were completed, four of which traded below their offering prices at year’s end. Two biotechs planning IPOs in 2003 changed their minds and put their offerings on hold.
A different marketplace had emerged early this year. As of mid-March, 13 biotechs had filed IPOs (one was withdrawn), with 25 to 30 expected to hit the market by year’s end. The current batch of IPOs have products in later stages of clinical development. Some of these biotechs are touting desirable partnerships with big pharmaceutical companies. Case in point: Eyetech Pharmaceuticals, whose stock gained 54 percent in its first day of trading at the end of January. The stock-offering price of $21 per share was quickly ignored and it opened at $30 per share. Eyetech, unlike many biotech IPOs in recent years, has a potential blockbuster in the making, in partnership with Pfizer. Pegaptanib sodium (Macugen) is expected to cure macular degeneration, which afflicts about 12 million Americans. Making the company even more attractive is pegaptanib’s fast-track designation by the U.S. Food and Drug Administration.
On the flip side, Dynavax had to price its stock well below its expectation of $12 to $14 per share to $7.50. Unlike Eyetech, Dynavax does not have an agreement with a big drug maker, and its lead product is just initiating a phase 2 trial.
Peninsula Pharmaceuticals, which is developing intravenous and inhaled antibiotics for life-threatening infections in hospitalized patients, decided at the last minute that the timing for an IPO was not right. Peninsula has one product in phase 3 trials and has two alliances with big pharmaceutical companies. Yet, on March 9, the day the lead underwriter was set to price Peninsula’s IPO, the company pulled the plug. “Peninsula will issue an IPO in the future; it is just on hold at the moment,” a Peninsula spokesperson tells Biotechnology Healthcare. The IPO, she says, will wait until progress is made on current clinical trials, though she adds that Peninsula “did not need the IPO right now, because it does not need to raise cash at this time.” Peninsula, she says, has raised $60 million in financing, with a total of $63 million available in cash.
Biotech IPOs in 2004*
| Company | Product pipeline | Most advanced stage of drug development |
|---|---|---|
| Acadia Pharmaceuticals | Parkinson’s disease, schizophrenia, pain and glaucoma | Phase 1/2 |
| Alnylam Pharmaceuticals | Macular degeneration | Preclinical |
| Anadys Pharmaceuticals | Hepatitis C, bacterial infections | Phase 2 |
| Barrier Therapeutics | Dermatology | Phase 3 |
| Corcept Therapeutics | Psychotic major depression, Alzheimer’s disease | Phase 3 |
| Cytokinetics | Cancer, heart failure | Phase 2 |
| Idenix Pharmaceuticals | Hepatitis B&C, HIV | Phase 2 |
| Memory Pharmaceuticals | Central nervous system disorders | Phase 1 |
| Metabasis Therapeutics | Liver diseases | Phase 2 |
| Santarus | Gastrointestinal disorders | Phase 3 |
| Tercica | Growth hormone deficiencies | Phase 2/3 |
| Xcyte Therapies | Cancer, Infectious diseases | Phase 1/2 |
As of mid-March.
SOURCE: COMPANY DATA
Other notable IPOs include Corgentech, whose anticipated price was $14–$16; the stock ended the first day of trading at $21.40. Renovis also saw strong demand after its stock opened at $14.40, higher than the offering price of $12. Renovis has an exclusive licensing agreement with AstraZeneca. Anadys Pharmaceuticals’ IPO will be interesting to watch. Although its treatments for hepatitis and bacterial infections are still in the early stages of development, its partnerships with Amgen and Gilead Sciences may boost its success.
Caution: Watch Hubris Over Biotech Boom
According to Pricewaterhouse-Coopers’ Securities Litigation Study of 2003, Biotechs were hit with 17 percent of all U.S. investor lawsuits in 2003, though biotechs make up only 2 percent of the nation’s publicly traded firms. The lawsuits cover a wide range of allegations, including hiding FDA communications and providing misinformation about the performance of core company products.
The potential for abuses in a burgeoning industry has gotten the attention of the FDA and the U.S. Securities and Exchange Commission. The FDA and SEC are collaborating to prevent manufacturers from misleading investors about regulatory prospects for new products. The FDA, pressured to do more about securities fraud since the ImClone insider trading scandal, says it can be in a position to identify potentially misleading statements. Under the agreement, FDA employees now have a centralized procedure to make the SEC aware of such statements.
Pharma/Biotech Alliances Continue to Grow.
Expensive clinical trials, the energy needed to entertain new investors, and a lack of resources for sales and marketing are among the reasons biotechs are forming more alliances with big pharma. For pharmaceutical companies, the benefit is adding innovative products to their pipelines. According to a report by the Tufts Center for the Study of Drug Development, such partnering will become more prevalent as manufacturers seek to save research and development costs and shorten product development times. In the center’s “Outlook 2004” report on drug and biotech development, Director Kenneth I. Kaitin, PhD, states, “Business as usual is no longer an option when it comes to developing new prescription drugs.”
AT A GLANCE.
60 percent of Pfizer’s drug discoveries are from biotech alliances
In one year, Merck entered into 52 agreements with biotech companies
In the past 25 years, biotech R&D costs exceeding $200 billion have resulted in 175 products — an average cost of $1.14 billion each
A look at the landscape drives home the point. AstraZeneca has more than 200 collaborations with biotechs and universities for drug development; several other major drug manufacturers’ discoveries are largely the result of partnerships. Millennium Pharmaceuticals has no drugs in clinical trials based on its own clinical research, nor do Bayer or Abbott Laboratories.
For biotechs, the carnage of history suggests a rationality to partnering with big pharma rather than competing against it. The potential for success for biotechs is enormous, but few have succeeded. During the past 25 years, only 70 of the 1,400 biotechs operating today, have brought a drug to market. Only 175 new products were developed. During the same period, R&D costs exceeded $200 billion.
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United BioSource acquired Med-tap International, a provider of health economics and outcomes research services for the biotech and pharmaceutical industries. Medtap helps manufacturers integrate pharmacoeconomic analysis into their product-development schemes…. In a $311 million transaction, Cytyc announced it would acquire Novacept…. Genzyme offered $215 million for bankrupt Impath, a week after announcing that it would acquire Ilex Oncology.… Merck has purchased Aton for an undisclosed sum…. Human Genome Sciences laid off 200 workers and will focus on a select number of drug targets with the best chance of making it to the market. In 10 years, not one HGS drug has received FDA approval…. The National Human Genome Research Institute has sequenced the chicken genome for the first time.