After two incredible years for public offerings, including IPOs, in the biopharma sector, deal flow and volume ran out of steam in the first quarter of the year, particularly during February and March. The reason: a precipitous drop in biopharma company stock price valuations caused by a confluence of factors, including a broader equity market correction and lingering concerns about global growth and an economic downturn.
Despite that, the sector managed to generate about $5.6 billion in the quarter, thanks to a flood of private company deals that saw a total of more than 90 deals completed in 1Q 2016 raising $2.4 billion – a total just topping last year's total for the same period. It is a very rare occasion for private financing to outpace public financing in a quarterly period. (See First Quarter Financings for Biotech Over Past Decade, below.)
Compared to the first quarter of 2015, public financing dipped a dramatic 84 percent. In February, only one public offering deal was completed – Mast Therapeutics Inc., of San Diego, raised $8 million to fund clinical development programs of vepoloxamer in sickle cell disease and vepoloxamer and AIR001 in heart failure. In March, there were nine deals completed raising a total of $144 million.
The majority of the follow-on public offering deals in the quarter (92 percent) were finalized in January, according to data from BioWorld Snapshots.
IPOs getting out, but slowly
Not surprisingly, the capital market volatility and low investor confidence slowed biotech IPOs, with just six companies completing their public offerings on U.S. exchanges in Q1 2016 raising $559 million, compared to 10 IPOs raising $925 million in Q1 2015.
It took a month to get biotech IPOs out of the door, with Chinese cancer drug developer Beigene Ltd. and Cambridge, Mass.-based genome-editing company Editas Medicine Inc. becoming the first two companies – in any sector for that matter – to price U.S. IPOs in the quarter. (See BioWorld Today, Feb. 4, 2016.)
Beigene raised a hefty $182 million from 6.6 million American depositary shares (ADSs) at $24 per ADS. The financing will help fuel the company's pipeline development, which includes three small-molecule candidates – Bruton's tyrosine kinase inhibitor BGB-3111, RAF dimer inhibitor BGB-283 and PARP inhibitor BGB-290 – as well as one monoclonal antibody, BGB-A317, a PD-1 checkpoint inhibitor.
The company also disclosed plans to lease and build a manufacturing facility, for which it entered a ¥120 million (US$18.2 million) loan agreement with Suzhou Industrial Park; the firm has committed to repay 50 percent of that loan by September 2018.
Editas also hauled in more than $100 million from its offering, with investors excited about its CRISPR/Cas9 technology. It said it intends to use proceeds to support preclinical and clinical studies of a lead program targeting Leber congenital amaurosis type 10, or LCA10, a genetic form of progressive blindness. Editas has demonstrated that combinations of Cas9 and guide RNA pairs could restore normal messenger RNA and protein expression in cells taken from patients with a specific mutation that causes LCA10. A clinical program is expected to launch next year.
In the wake of those first two successful transactions, Chicago-based Avexis Inc. quickly followed with an upsized IPO, pricing 4.75 million common shares at $20 apiece – the midpoint of its intended range – to raise $95 million. (See BioWorld Today, Feb. 12, 2016.)
The proceeds, combined with $65 million generated in September 2015 in a class D common stock financing, gives Avexis a strong bank balance to support its lead compound, AVXS-101, currently being evaluated in a fully enrolled phase I study in spinal muscular atrophy.
The aftermarket performance of the 2016 IPO graduates is an average 31 percent, a value that could fire up companies looking to join the public ranks.
Editas has performed exceptionally well, seeing its stock (NASDAQ:EDIT) jump 116 percent, closing the quarter at $34.54. Although shares of Avexis (NASDAQ:AVXS) encountered headwinds on their first day of trading, falling as much as 20 percent early and closing at $18.05 for a loss of $1.95, or 9.8 percent, they did recover and closed out March at $27.24, up 36 percent. Shares of Beigene (NASDAQ:BGNE) closed up 18 percent from their first day listing.
According to a report issued by Renaissance Capital, the U.S. IPO market in the first quarter hit its lowest levels since the financial crisis struck back in 2008.
Only companies in the health care sector braved the uncertain markets, with a total of eight deals in the space raising $700 million "thanks to substantial buying by their existing shareholders."
Across all sectors, the report noted that nine companies hoping to raise a combined $1.4 billion postponed their IPOs due to severe valuation pushback. Despite low filing activity in the first quarter, a large backlog of pre-IPO companies sits on the runway, including 19 biopharmaceutical companies, according to BioWorld data.
Going forward there could be an uptick in activity as "the market's rally and lower volatility during the second half of the quarter is an encouraging sign for IPO issuance, but the real test lies with the IPO icebreakers that launch in the coming months," the report said.
Bonanza for private companies
There was no slowdown in venture financing in the quarter, with more than $2.4 billion being doled out – the largest amount raised in a quarter in the past 10 years.
Companies targeting cancer attracted about half of that total and, encouragingly, investors are returning to the infectious diseases space, with companies involved in that area attracting almost $300 million. (See VC Financings by Therapeutic Area and Amounts Raised, below.)
A company developing a humanized IgG4 kappa anti-CD47 monoclonal antibody, and aptly named Forty Seven Inc., was the leader in terms of funds raised in the first quarter. It completed the first half of a committed $75 million series A financing led by Lightspeed Venture Partners and Sutter Hill Ventures. Clarus Ventures and GV (formerly Google Ventures) also participated. (See BioWorld Today, Feb. 25, 2016.)
The company has licensed rights to more than 100 issued or pending U.S. or foreign patents that cover the antibody Hu5F9-G4 and several other immune checkpoint inhibitors and cancer-specific antibodies from Stanford University.
Forty Seven will use the proceeds of its financing to complete a lead program stimulating ingestion of cancer cells by the immune system, which is in two phase 1 trials for solid tumors and acute myeloid leukemia, as well as fund additional clinical trials to assess Hu5F9-G4 in combination therapy and advance some preclinical programs towards investigational new drug applications.
The field of immuno-oncology has lit a fire under European investors as well as their counterparts in the U.S.
One beneficiary of that enthusiasm is Cambridge, U.K.-based Mission Therapeutics Ltd., which generated £60 million (US$86.3 million) in a third round of funding, to help move two first-in-class small-molecule inhibitors of the deubiquitylating (DUB) enzymes that are at the heart of DNA damage repair processes, into formal preclinical development. (See BioWorld Today, Feb. 3, 2016.)
The financing will be sufficient to complete phase I development of the two lead programs, in Parkinson's disease and immuno-oncology, with results expected in 2019. Mission's first inhibitor targets USP30, the only DUB that localizes to the outer mitochondrial membrane. Basic molecular biology shows it has roles it mitophagy, which is of interest because defective mitophagy has been linked with Parkinson's disease. The second program will take a small-molecule approach to developing an immuno-oncology therapy by targeting USP7.
The financing helped boost the total amount raised by European biotech firms to a collective $600 million in the first quarter of the year from 23 deals that released terms of their financings.
Although the performance of biopharmaceutical companies wasn't pretty in the first quarter, it could have been much worse if it wasn't for a late March rally.
The BioWorld Drug Developers Index, although down a whopping 32 percent in the first quarter, jumped up 9 percent in March, in lockstep with recovery in the general markets where the Nasdaq Composite index and the Dow Jones Industrial average gained 7 percent, respectively, in the same period. The Nasdaq now is only down 2.75 percent year-to-date, with the Dow now up 1.5 percent (See BioWorld Drug Developers Index, below.)
Leading gainer for the month was Acadia Pharmaceuticals Inc., whose shares jumped 62 percent (NASDAQ:ACAD) fueled by Nuplazid (pimavanserin) for psychosis associated with Parkinson's disease receiving a favorable review from the FDA's Psychopharmacologic Drugs Advisory Committee, which largely followed the course suggested by earlier briefing documents. (See BioWorld Today, March 30, 2016.)
Despite the pop in value, Acadia's shares remain down 21 percent for the quarter.
Celldex Therapeutics Inc. led the decliners in the group, with its shares tumbling 44 percent in March following a clinical trial setback. The company reported that it had stopped a phase III glioblastoma trial with Rintega (rindopepimut) following a recommendation from the data safety monitoring board (DSMB) that it pull the plug on the study in patients with newly diagnosed, epidermal growth factor variant III-positive disease, since it would not hit statistical significance on the primary endpoint: overall survival in those with minimal residual disease. DSMB investigators found that the Rintega arm and the control arm data worked out about the same. (See BioWorld Today, March 8, 2016.)
The company's shares are down 76 percent for the quarter.
The BioWorld Biopharmaceutical Index didn't benefit from the market's momentum in March and slipped 1 percent, contributing to a 20 percent drop in value for the quarter – probably the sector's worst start to a year for almost 20 years. (See BioWorld Biopharmaceutical Index, below.)
The leading biotech companies by market cap in that group have seen their share values sink considerably in the quarter – Gilead Sciences Inc. (9 percent), Amgen Inc.(7 percent), Celgene Corp. (16 percent) and Biogen Inc. (15 percent).
Amgen's shares did get some traction in March with a 2 percent increase thanks to some positive news flow. The company and its partner, UCB SA, reported that the sclerostin inhibitor romosozumab met its primary endpoint in a pivotal phase III study, called Bridge, providing men with osteoporosis with a statistically significant increase in bone mineral density (BMD) at the lumbar spine vs. placebo at 12 months. However, a new potential cardiovascular safety signal and a focus on BMD over fracture reduction left analysts awaiting more insight on the drug before passing judgment. (See BioWorld Today, March 22, 2016.)
On the regulatory front, Amgen prevailed when a U.S. District Court jury ruled that patents covering its PCSK9 antibody, Repatha (evolocumab), are valid, a decision that, if it stands, could put Regeneron Pharmaceuticals Inc. and partner Sanofi SA on the hook for damages, including royalties from sales of their competing product, Praluent (alirocumab).
Gilead also saw its shares recover by 2 percent in March helped by a positive report from analysts at Leerink who noted that "we are positive on GILD with an outperform rating, due in large part to success of its antiviral programs – including the significant cash generation of its HCV franchise."
With analysts suggesting that the bottom in the market has been reached and a slow recovery is in the cards, that could bode well for the biopharma sector going forward. The low valuations at the present time is fueling speculation that we are about to enter a period of intense biotech M&A activity. Investors will be paying close attention and certainly speculating on likely acquisition candidates.