The News:

Over the last two weeks, several Biotech companies in Europe have decided to postpone IPOs on the stock markets there prompting speculation that biotech stocks are underperforming, according to LaBiotech.eu. Since the end of October, European biotechs that have delayed their IPOs include Abacus Medicine A/S (Copenhagen) on the Frankfurt stock exchange, Themis Bioscience GmbH (Vienna) on the Euronext Amsterdam and NiCox SA (Valbonne FRA) on the US Nasdaq–all citing “adverse” and “volatile” market conditions.

After a low point in 2016, biotech stocks have been performing well overall in the past few years. Does this wave of delayed IPOs mean this positive trend is reversing?

“In the short term the answer is yes, in the long-term the answer is no,” Mark Wegter, Managing Partner at the life science investor firm LSP, said. “If you look at how the sector has done over the year, until summer it’s done very well. As of October it has been terrible, but that’s the case for the entire equity world.”

Public markets in all sectors have been down since October, mostly as a consequence of changes in the US trade policy, according to Wall Street traders. Companies that were trading up 70% in the summer are now down to 1-4%. As a result, investors are becoming cautious.

“Due to the recent market turmoil, investor sentiment has deteriorated and as a result investors focus on their existing investments rather than on new offerings,” said Sebastian Grabert, Representative of Euronext in Germany. “However, we are confident that–assuming markets get back into shallow waters–good assets with reasonable valuations have a good chance to enter successfully the public equity market.”

Not all biotech companies are suffering equally. Despite the challenging market conditions, Orchard Therapeutics PLC (London) managed to price its IPO on the US Nasdaq earlier this month. The gene-therapy firm started trading with a market cap of over €1B, becoming one of just a few European biotechs to hit the billion-euro mark.

“Investors are currently still interested in new issues, but are more selective in IPOs they prioritize, showing strong appetite for large or high-growth companies in well-known sectors, but show more discipline on smaller or less known stories,” said Nicholas Hanser, Director of Equity Capital Markets at Bryan Garnier investment bank in Munich.

“I don’t think this should be interpreted as a sign that the IPO window is closing,” a European life science investor, who wished to remain anonymous, said. “European companies have always found it more difficult to go public and to raise follow-ons than their US counterparts. The high number of successful IPOs may encourage some companies to try and go public which are not yet totally ready to do so.”

LaBiotech says that with the exception of cases like the Orchard one, the consensus seems to be that it’s wise for most biotech companies to wait before going for an IPO, or even a share offering. Curetis AG, a German diagnostics firm, raised only 48% of its target in a private placement on the Euronext last week, which was likely affected by the current market conditions.

“I’m not surprised to see some of the IPOs that are planned are being delayed. Usually when the markets crash or go down that severely, the biotech sector goes down fastest,” said Wegter. “And the other way around, when they come back, [they] typically comes back up faster. I think it will recover the moment that the market stabilizes again and volatility starts to diminish.”

When such a recovery will happen still seems uncertain. Some investors are expecting a bigger crash to hit stock markets in December, says LaBiotech.

Steve’s Take:

In marked contrast to the gloom and doom scenario in Europe for healthcare IPOs, the sentiment is just the opposite here in the US. Case in point? Last week’s IPO pricings and registrations. Let’s take a look:

1) Vapotherm Inc., which provides noninvasive breathing aids to treat respiratory distress, raised $56 million by offering 4 million shares at $14, the low end of the range of $14 to $16. The Exeter, NH-based company developed the Precision Flow line of devices to provide high-velocity heated, humidified and oxygenated air to treat patients with conditions such as pneumonia, chronic obstructive pulmonary disease, asthma and heart failure. Some 1,200 of the devices have been sold in the US, mostly into hospital ICUs, the company said. Vapotherm lists on the NYSE under the symbol “VAPO.” BofA Merrill Lynch and William Blair acted as lead managers on the deal. Shares closed the week up 21% at $16.96.

2) Included among recent SEC filings for initial public offerings, Synthorx Inc., a preclinical biotech developing immunotherapies for solid tumors and autoimmune disorders, registered up to $100 million worth of common stock. The biopharmaceutical firm leverages its platform technology called Expanded Genetic Alphabet to optimize biologics called Synthorins to treat cancer and autoimmune disorders. A Synthorin is an optimized protein with enhanced pharmacological properties based on encoding novel amino acids from the addition of a new DNA base pair developed by the company. The La Jolla, CA-based company was founded in 2014 and plans to list on the Nasdaq under the symbol “THOR.” Jefferies, Leerink Partners and Evercore ISI are the joint bookrunners on the deal. No pricing terms were disclosed.

3) Eton Pharmaceuticals Inc., which is developing liquid formulations of various approved drugs, raised $21.6 million by offering 3.6 million shares at $6, as expected. At the IPO price, Deer Park, IL-based Eton commands a fully diluted market value of $113 million. Eton was previously a subsidiary of Imprimis Pharmaceuticals, now its largest shareholder. The specialty pharma company develops medicines via the FDA’s 505(b)(2) pathway which allows the inclusion of data generated by others in marketing applications. Pipeline Candidates Include EM-100, a preservative-free formulation of ketotifen for allergic conjunctivitis, ET-103, an oral liquid formulation of a drug to treat hypothyroidism. Eton lists on the Nasdaq under the symbol “ETON.” National Securities acted as a lead manager on the deal. Shares closed the week up 2% at $6.10.

4) Minneapolis, MN-based DiaMedica Therapeutics Inc. filed a preliminary prospectus for an IPO. The clinical-stage biopharma firm develops novel recombinant (synthetic) proteins to treat neurological and kidney diseases, with a primary focus on acute ischemic stroke (AIS) and chronic kidney disease (CKD). Lead candidate is DM199, a recombinant form of human tissue kallikrein-1 (KLK1), for the potential treatment of both AIS and CKD. KLK1 is an enzyme produced in the body that plays a key role in the regulation of blood flow, vasodilation, inflammation and oxidative stress. Two forms of KLK1, derived from human urine and pig pancreas, are currently sold in Japan, China and Korea to treat AIS, CKD and other disorders.

5) And Cambridge, MA-based Moderna Inc. (MRNA) filed a preliminary prospectus for an IPO. The biotech develops therapies based on messenger RNA (mRNA), the type of RNA that plays an essential role in protein synthesis. Pipeline candidates include Phase 1-stage mRNA-1647, a vaccine for the prevention of CMV infection, Phase 1-stage mRNA-4157, a personalized cancer vaccine, and Phase 1-stage mRMA-2416, an intraturmoral cancer therapeutic. Founded in 2010, Moderna has raised $2.6 billion from Flagship Pioneering, AstraZeneca and others. Planning to raise $500 million via the IPO, Moderna is the largest VC-backed biotech IPO ever. It already has 21 therapeutic programs, with ten in ongoing clinical trials for a broad range of diseases including influenza, cardiovascular and cancer.

Bottom Line:

These additional IPO pricings and registrations are testimony to the continuing vibrancy of the US IPO market. At least for now. Surely, the US market has its own uncertainty but nowhere near the storm clouds building in Europe due to the fate of Brexit, which is still unclear. That’s the real fundamental unknown impact on the European economy and perhaps the reason why we’ll see more European IPOs shift to the US and Hong Kong, where high-risk capital still abounds.