Healthcare Technology Featured Article

January 07, 2016

Why Are So Many Biotech Startups Filing IPOs in 2016?

In 2016, a number of biotech companies are awaiting FDA approval, which will give the green light for potentially lucrative drugs to go to market. Adding more excitement to the sector this year is the sheer amount of biotech companies going public in the coming year. We’re barely into the year and already six companies have filed their IPO plans.

The wave of new IPOs comes at the end of one of the slowest years for the biotech industry. After rapid growth from 2011 to mid 2015, the industry slumped in the latter half of the previous year. For example, the iShares NASDAQ Biotechnology Index ETF (IBB) rose just 6.6 percent in all of 2015 after enjoying average annual gains of 30 percent. New biotech IPOS slowed down to a halt during latter half of 2015.

With this glut of new IPOs (and more likely to come later in the year), the biotech industry is once again an intriguing investment opportunity.

Why Are There So Many IPOs?

The announcement of six IPOs, all within a day on Jan 4, is partly due to luck of the timing, as it was the first business day of 2016. However, it also points to broader trends within the industry, as upstart biotechs need to raise lots of money due to the time-coming and expensive processes of research and obtaining approval.

Both big biotech firms and smaller companies are seeing research and development costs outpace revenues. To obtain the funding needed to hit the jackpot of creating safe, effective drugs, 71 percent of biotech firms have obtained equity financing, while 34 percent obtained funding through credit markets.

When it comes to raising money, going public is one of the best — and biggest — ways to do it. That’s why we’re seeing several companies filing IPOs as the industry stabilizes. Here are the newcomers:

  • Audentes Therapeutics. This California-based gene therapy company is aiming to raise $86 million with its upcoming IPO. Gene therapy has a number of applications, but perhaps the most practical at the moment is eliminating potentially fatal diseases during the embryo stage. The company appears to be on strong financial footing. In October 2015, Audentes Therapeutics raised $65 million in a round of funding.
  • Bavarian Nordic. This Danish vaccine maker plans to raise $86 million with its IPO. The company earns most of its revenues through small pox vaccines, but there’s potential in other areas. Vaccines for Ebola and prostate cancer that are currently undergoing trials.
  • Corvus Pharmaceuticals. Corvus filed for a sizable $115 million IPO after raising more than $100 million in funding in 2015. The company is working to treat cancer patients by developing drugs and antibodies that target the immune system. One of their drugs is entering clinical trials early this year.
  • Editas Medicine. This Massachusetts-based gene therapy company filed for a $100 million IPO, which is subject to change. Editas has received plenty of attention thanks to the potential of its CRISPR gene manipulation tools. It’s already backed by Bill Gates and Google Ventures.
  • Reata Pharmaceuticals. Texas-based Reata hopes to raise up to $80 million to help advance its drugs to eventual FDA approval. Its most promising drug, bardoxolone methyl, is entering Phrase 3 trials. The drug is aimed to reduce hypertension.
  • Syndax Pharmaceuticals. Syndax plans to raise up to $86.25 million with its upcoming IPO. The company’s drugs are used to treat various cancers, such as breast cancer, melanoma, lung cancer and ovarian cancer. Some of their products are beginning Phase 1b/2 clinical trials in 2016, while one of their drugs is presently being tested in Phase 3 trials.

These six companies show a glimpse of what’s in store for the IPO industry, as it appears it’s primed for an eventful year. 

Edited by Kyle Piscioniere

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