PHILADELPHIA—It’s not news that money in biotech has been ballooning. Private rounds that would have been considered sizable years ago are dwarfed by megarounds of $80 million, $100 million or more. And those companies will eventually need an exit, leading to increasingly pricey IPOs.
Case in point: Fewer biotech companies went public in 2018 than in the previous year. But those companies raised more IPO dollars than in any year in the past two decades and “probably ever,” said Matthew Kennedy, a senior IPO market strategist at Renaissance Capital, to FierceBiotech last year.
What’s more, there appears to be a spate of biotechs going public earlier and earlier—some with only preclinical programs. Off-the-shelf CAR-T player Allogene raised $288 million last October with 16 preclinical assets and only one clinical-stage program, while Moderna Therapeutics, with no late-stage programs, followed in December with its $604 million deal—the biggest in biotech history. The trend hasn’t let up in 2019, with preclinical cancer company Atreca and early-stage gene therapy biotech Prevail Therapeutics both filing for $100 million IPOs.
Analysts point to increasing confidence in new technologies such as gene therapy and CAR-T as a driver of these larger and earlier IPOs. The rise of platform companies that need more cash to target multiple disease areas are a factor, too. We caught up with some biotech CEOs at this year’s BIO International Convention in Philadelphia to get their take.
Alnylam Pharmaceuticals CEO John Maraganore, Ph.D., reflected on his company’s $26 million IPO 15 years ago. "When we did our IPO, we raised like $30 million on a $98 million pre-money valuation. Compared to these numbers, it seems so paltry. I remember when we did our IPO, reflecting on Biogen’s IPO—they did something even smaller,” he said.
“It seems that valuations are getting bigger and amounts being raised are getting larger as time goes on. Part of it just reflects the cost of doing R&D in 2019 versus the cost of doing R&D in 2004, when we went public. No doubt those costs have gone up,” he said. “As the industry has matured and proven itself to be a real, sustainable business, you’d appropriately expect valuations to go up because people should have more confidence around the ability of industry to deliver on innovation.”
It’s not just confidence—the technology has improved, too.
“The science has gotten better over the last 10 years, so it’s not surprising to see much more value coming out of industry. My jaw drops when I think about the types of medicines we are now bringing to the market … That should be reflected in value and it is. That’s a good thing,” he said.
Ultragenyx Pharmaceutical started out in 2011 during the “hangover” from the financial crisis, said its CEO, Dr. Emil Kakkis. The rare disease biotech aimed for a $30 million series A, ultimately picking up $45 million, a sum that Kakkis reckoned would get two programs through phase 2 trials. But the key, he said, was having enough money to hire the right people to usher programs forward.
“What we are seeing now is that whole idea supersized. That means not just getting good talent; it means getting a super team,” he said. “The truth is that a larger amount of money can become self-fulfilling. A high-quality team gives a company the flexibility to do what it needs to do to win.”
Because plans change and drugs fail, “it’s not about the initial plan being successful. It's about having a team that can find their way to a final plan that does succeed.”
The co-founders of Cydan, the orphan disease-focused biotech builder, warned against the dangers of too much money.
“You want to be sure you can achieve the next value inflection point with the capital you have. If you have too much capital, maybe you’ll be tempted to do things not as streamlined, you may not be thinking about what the critical path is for that particular disease or drug,” said Cydan CEO Chris Adams, Ph.D. “Of course it makes great headlines, but I think having limited resources will make you think more about where to spend the capital.”
“Raising too much can be a burden,” said Cydan President James McArthur, Ph.D. It can inflate a company’s valuation beyond sustainability, making it difficult to raise more funds in the future, he said.
Jeremy Levin, CEO of Ovid Therapeutics and the newly elected BIO chair, doesn’t think the growing IPOs are new. He harkened back to the “huge delight” when the human genome was sequenced, leading to the IPOs of Millennium Pharmaceuticals and others in the 1990s.
"I think we’ve seen this before. It’s a function of a capital market where excitement exceeds practicality, a function of the enormous investment venture capital has made in different areas,” Levin said. “There are now something like 300 companies investing in cell therapy, many years away from a product. Some of these companies are going to simply fall away. Do I have a view on it? It’s part of the cycle we’ve had for years and years.”
“There will come a moment where, if many of them fail, or are not bought, that venture capitalists and others who are financing them will be asked by the capital markets to deliver something that’s going to help a patient,” he said. “I think … there is an abundance—not an overabundance—of optimism. But we are a long way away from that moment.”
As for going public early, it’s a “mystery” to Halozyme CEO Dr. Helen Torley why so many companies are choosing to do so.
“A lot of the ones that went public early last year are well below their public price and that’s because it’s hard when a company is really early-stage to show the progress needed to support the price,” she said. "The ones I follow are all well underwater at this point in time, which will happen until their next clinical data.”
She admitted she hasn’t been in a position to make the call to go public—Halozyme did its IPO in 2004, 10 years before she signed on—and that this decision hinges on different perspectives and the economic environment.
“I would probably have been one of the ones that waited to have compelling clinical data. If you can find VC funding, there’s obviously plenty of funding available for companies,” she said.
Maraganore said he shouldn't be one to judge.
“It would be hypocritical of me if I spoke disparagingly about that. We went public in 2004 as a preclinical company … It was possible to go public back then because people were enthusiastic about where we were going. And we ultimately needed to do it—it was the only way to raise the capital it takes to fund one of these businesses,” he said.
And it’s more about the quality of the company than its stage of development.
“Obviously, it’s better if you’ve got clinical data and you’re closer to an ultimate approval. Of course, that’s better from a public market perspective,” Maraganore said. “But on the other hand, if you’ve got powerful science and technology, a great team, great IP and the potential to transform medicine with a new approach? I think there’s no harm whatsoever in companies like that going public at the preclinical stage.
“If investors are there and interested in making those investments, and they have eyes wide open on how long it might take—and on the ups and downs they might inevitably experience—it's fair game.”