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To float or not to float?

6 January 2016  •  Author(s): Sue Staunton, James Cowper Kreston

For many years, global markets had focused their attention on traditional sectors such as natural resources rather than on life science companies, so initial public offerings (IPOs) for such companies were uncommon. The past few years have, however, seen a sea-change and life science companies – from biotech to medical devices firms – have come very much back into favour as the must-have stocks; with opportunities for significant upsides. The turnaround started in 2013; the markets began to pick up that year and 66 life science IPOs were completed globally. By 2014, there were an extraordinary 133 life sciences companies completing IPOs, raising some $11 billion.

To float or not to float

The first quarter of 2015 seemed to show a dramatic downturn in life science stock market launches, however, with a number of analysts suggesting that this presaged the closure of the biotech IPO window. This was not to be the case, and the second quarter saw a resurgence; June 2015 was the busiest month on the market for the sector in 15 years. During this month alone there were 35 companies that went through United States IPOs, raking in some $5.9 billion. When, in early September this year, gene therapy company RegenxBio floated at a price of $22 per share, its valuation almost immediately jumped to $37 per share. Business was booming.

However, the market for biotechs is particularly vulnerable to changes in public policy. On 21 September the US democratic party presidential hopeful, Hilary Clinton, tweeted that she would release a plan to combat the high price of prescription drugs. She was apparently responding to the news that Turing had acquired an older antibiotic and increased its price by more than 5,000%. Immediately following this tweet there was a dramatic drop on the Nasdaq Biotechnology Index. It is clear that Clinton’s tweet hit a nerve since the sector had already been concerned about drug pricing, but there appeared to have been a knock-on impact on the markets, with a number of US floats, including Cytomax, Aclaris Therapeutics, Nabriva, Edge and Mirna, not reaching expected valuations. At the beginning of October, UK company Shield Therapeutics postponed its IPO on the London Stock Exchange, noting that current market conditions did not make it a conducive time to raise cash.

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