Biotech IPOs Show Wall Street Likes New Toys

The biotech sector is white hot these days, and as a result, the IPO window is wide open.  This is illustrated by the fact that preclinical companies like gene therapy outfit Bluebird Bio and Agios Pharmaceuticals have either just slipped through the window or are about to.   This is also illustrated by the fact that Duchenne Muscular Dystrophy (DMD) exon skipping company Prosensa is aiming at a valuation of $400M at its IPO despite the uncertainties around the approvability of its only product candidate that matters (endpoints and safety issues) and for which it has given away much of the financial potential to a Big Pharma (GSK). And the ticker: RNA.

As it relates to gene therapy and RNA Therapeutics companies IPOeing- in addition to Prosensa, small molecule RNA processing modulation Co. PTC Therapeutics and aptamer company Regado- a gap between the valuations of already public companies and those emerging from the obscurity of the private sector is becoming apparent.  Without meaning to talk down on Bluebird Bio or gene therapy, I am scratching my head as to why this early-stage company sports a $150-200M market cap (it priced above its guided range and popped 50% on the open) whereas a much more proven and clinically advanced lentivirus-based gene therapy company, Oxford Biomedica, is not valued at even a quarter of that.  

Given that Oxford Biomedica is developing drugs for medically important indications, especially for those affecting the eye and can be proud of a remarkable preclinical literature record, just as Bluebird Bio can, the difference cannot be product versus platform focus.  Or take for comparison preclinical microRNA Therapeutics company Regulus Therapeutics (2012 IPO) with a market cap of $350M and clinically slightly more advanced Arrowhead Research with a market cap of around $60M (disclosure: I own Arrowhead).   

Instead, I believe it shows the benefit of being able to stay out of the spotlight when valuations are severely depressed as they were in the wake of the housing crisis when research and having a pipeline were actually assumed to be liabilities, not assets.  Companies like Oxford Biomedica and Arrowhead Research may thus be viewed as damaged goods.  Only supposed best-in-class companies in the RNA Therapeutics space with a halo like Alnylam and ISIS Pharmaceuticals were able to decisively spring back from low valuations as sentiments improved.

By contrast, biotech networks such as the one around Third Rock have understood to wrap up biotech companies as exciting new toys for Wall Street to buy.   Orphan drugs anybody?  Of interest, Alnylam’s CEO John Maraganore has had an involvement with both Agios and Bluebird.  I give these individuals full credit for promoting innovation.   By the same token, the depressed valuations of some of the existing innovators are another example of the inefficiency of the public markets.