Investors Show No Love for Biopharma IPOs

April 12, 2011
Marie Daghlian

As a recent spate of disappointing initial public offerings show, diminishing appetite for risk is forcing small biopharma companies to slash their IPO prices and sharply increase the number of shares offered in order to get the deals done.

This article published with permission from The Burrill Report.

Tranzyme Inc. (NASDAQ: TZYM) became a publicly traded company on April 4, raising $54 million through an initial public offering of 13.5 million shares at $4 per share. The Durham, N.C., biotech had hoped to debut mid-March in the $11 to $13 per share range, but its underwriters couldn’t get any traction for the offer until they slashed the price more than two thirds and tripled the number of shares offered.

Tranzyme’s struggles reflect a long-term trend in the biopharma sector, with tiny biotechs finding it increasingly difficult to raise the funds needed for research. Investment in the sector fell for the third straight year to $3.4 billion last year, down 20% from 2009 and the lowest total since 2002, according to a report by VentureSource, produced by VentureWire publisher Dow Jones & Co. Few generalist venture are willing to back biotech IPOs due to the risk, so cash-starved companies which must turn to a small group of venture specialists, VentureSource said. As a result, companies are being forced to cut their offering prices and bring their venture backers into the deal.

While Tranzyme got the money it needs to fund ongoing late-stage trials of its two lead compounds for gastrointestinal disorders, the offering diluted venture investors’ equity in the company. Its shares closed at $4.10 Monday.

Tranzyme’s travails may have been a sign to Aldagen Inc., another Durham biopharma in the queue, to pull its IPO. In its withdrawal filing request, Aldagen cited “market conditions” as the reason a public offering was not in its best interest at this time. This was Aldagen’s second IPO attempt. It had filed a registration statement in May 2008 that was withdrawn in October in the wake of the market meltdown.

Although biopharma IPOs are struggling, newly public companies in other sectors of life sciences are gaining traction. Shares of digital health and software firm Epocrates Inc. (NASDAQ: EPOC) of San Mateo, Calif., are trading up more than 20% since its IPO at the beginning of February. Epocrates went public at $16 per share, above its target $13 to $15 per share range. Monday, its shares closed at $21.20.

In the industrial biotech sector, Gevo Inc. (NASDAQ: GEVO), an Englewood, Colo., maker of renewable fuels and chemicals, went public at $15 per share, at the top of its range, and sold all of its overallotment to raise $123 million. Its shares were trading up more than 20% seven weeks after the company’s IPO. (Burrill & Co., publisher of The Burrill Report, is an investor in Gevo.) Monday its shares were at $24.45.

Fluidigm Corp. (NASDAQ: FLDM), a maker of microfluidic chips, has also done well post IPO. The South San Francisco tools company went public at $13.50 a share, the low end of its target range. Its shares closed Monday at $15.31, up nearly 13.5% from its debut.

Indeed, despite the weak reception for biotech IPOs recently, injectable drugs maker Sagent Pharmaceuticals plans to sell 5 million shares, under the symbol SGNT, at $14 to $16 a share, hoping to raise up to $80 million.

Ascletis Inc., a U.S.-China focused specialty pharma raised $100 million in a series A financing round led by a group of private Chinese investors. Based in Hangzhou, China and the Research Triangle Park area of North Carolina, the newly formed company says it will leverage U.S. innovation and strategic drug development experience with China’s cost efficiencies and highly skilled scientific work force.

President and CEO Jinzi Wu says the financing would be used in part to further build the Ascletis management team and to in-license clinical-stage compounds for development and commercialization specifically for the Chinese market. The company will also seek early stage leads that Ascletis will develop through clinical proof-of-concept before partnering on a global basis [See story].

Finally, PixelOptics Inc. has raised $45 million in equity and debt financing from a group of investors led by Safeguard Scientifics, with participation by Delphi Ventures, The Carlyle Group, Longitude Capital, and Stark Investments. Horizon Technology Finance provided the venture debt funding.

The Roanoke, Va.-based company’s recently launched product is the world’s first electronic focusing eyeglass, emPower! It changes optical power focus automatically, without moving parts and without making a sound. It is waterproof and shock resistant and has three modes of operation: manual on, manual off, and fully automatic.

Copyright 2011 Burrill & Co. For more life-sciences news and information, visit www.burrillreport.com.