Is the much-talked-about pop in initial public offerings (IPOs) among biotech companies reaching the diagnostics segment? After the highly watched public debut of Foundation Medicine (Cambridge, Mass.), industry watchers are hopeful that the answer is yes, but an examination of the evidence points to the fact that diagnostics companies have not fared as well as their pharmaceutical and other life sciences counterparts when entering the public markets.
More than three dozen biotech companies have filed for IPOs this year—a number experts say exceeds any other time in more than a decade. But according to life sciences financial services firm Burrill & Co. not all have been market successes. Of the 23 life sciences IPOs priced in the first half of the year, 10 launched below their target, with only two therapeutics companies priced above their target range. But from July through September, of the 16 IPOs that set pricing, only two completed their offerings below their target ranges and five priced above their targets, including Foundation Medicine.
Foundation Medicine is the shining example of a diagnostics IPO success. The company raised about $106.2 million with its $18 per share IPO. In its first day of trading on Sept. 24 it was one of the most heavily traded stocks of the day, according to Reuters, and reached a high of $34.19 for the day, 89 percent above its offering price. In its first week of trading, the company’s stock price rose another 12 percent above its first-day close but then has fallen with the market as a whole in light of concern over broader political and macroeconomic forces.
While skeptics look at the unprofitable company’s IPO success as part of the hype of personalized medicine, Foundation Medicine’s IPO is being looked at as a bellwether for other genomic-based diagnostics companies eager to raise capital in an environment of uncertain reimbursement prospects.
“There has been a fairly dramatic shift in the IPO market,” Daniel Levine, managing editor of the
Burrill Report, tells
DTET. “Initially public companies had marketed products. Now earlier-stage companies are accessing the public markets” as public market investors have increased their risk appetite.
Following in Foundation Medicine’s footsteps is CardioDx (Palo Alto, Calif.), which filed papers in October for an $86 million IPO. Back in September Veracyte (San Francisco), maker of the molecular Afirma thyroid test, filed plans for a $75 million IPO as did circulating tumor cell testing firm Biocept (San Diego), which filed for a $23 million raise.
“Companies are lining up to get their deals done as fast as possible as protracted dysfunction in Washington can disrupt momentum,” Levine says. “But if you look at the companies that are successful they are able to tell a story and capture the imagination of investors. IPOs can get done in any environment.”
| Performance of U.S. Diagnostics IPOs in 2013 |
| Company |
IPO Date
|
Target Range
|
Offering Price
|
Price as of 9/30/13
|
Return from IPO
|
| LipoScience |
1/25/2013 |
13-15 |
9 |
5.00 |
-44.4% |
| Cancer Genetics |
4/5/2013 |
11-13 |
10 |
20.26 |
102.6% |
| NanoString Technologies |
6/25/13 |
13-15 |
10 |
11.00 |
10.0% |
| Foundation Medicine |
9/24/13 |
14-16 |
18 |
39.64 |
120.2% |
| Source: Burrill & Co. |
But not all diagnostics companies have been as successful in the IPO market this year as Foundation Medicine. NanoString Technologies (Seattle) had a tougher start in its June 25 public market debut with stocks dropping more than 19 percent below its already discounted offering price. Priced at $10 per share, below the targeted $13 to $15 per share, the shares closed the first day at $8.06, which according to the
Seattle Times was the worst first-day results of any of the 151 offerings listed in Nasdaq’s IPO database in the previous 12 months. As of Sept. 10 the share prices
have remained above the asking price.
Takeaway: While the biotech IPO market is reaching levels unseen in the last decade, diagnostics companies have not all performed well, despite the optimistic start of Foundation Medicine.