MA Biotech IPOs May Be Stopping at 16

by Lenny Pierce, Research Analyst

The story over the last 20 months in Boston’s biotech industry has been the ever-growing list of companies going public. The most recent member of the club was Proteon Therapeutics, Inc. (NASDAQ: PRTO), which went public on October 22, raising $61 million, offering 6.1 million shares at $10 a piece. That IPO marked the sixteenth this year for Massachusetts biotechs. Despite the excitement, including the Boston Business Journal’s branding of the biotech industry as Boston’s “IPO Machine”, the party may be winding down. A handful of local biotechs who have filed their intent to go public this year are contemplating postponing that move. Some think it may be the less-than-stellar performance of their freshly public peers that is driving that decision.

Kathleen Smith of Renaissance Capital told the BBJ why, in her words, “the window for biotech is quickly coming to an end.” Renaissance is an exchange-traded fund focused on stocks that have recently held IPOs, putting this trend firmly in Smith’s area of expertise. Smith told the BBJ that investors have paid close attention to the stock changes in newly public companies and they don’t like what they see. For recent IPOs in general, the stocks are down 10% and Smith says that the declines are probably greater for biotechs. One local example is Tokai Pharmaceuticals (NASDAQ: TKAI), which saw its shares rise 58% after its IPO on September 17, but has watched the stock hang around or below the initial $15 share price as of late. Tokai is headquartered at One Broadway in Cambridge and develops therapies for the treatment of prostate cancer and other hormonally driven diseases.

Even Proteon had to cut their share price down to make their IPO happen. The 6.1 million shares at $10 each were originally intended to be 4.7 million at $12-14 each. That $10 price tag is 23% below the midpoint of their proposed share price. Proteon is based at 200 West Street in Waltham and is developing a drug that could prevent blood vessels from clotting after surgery in order to prepare patients for dialysis.

The most recent defector from the trend is Rhythm Pharmaceuticals (855 Boylston Street), which just withdrew its plans for an $86 million IPO first filed in late August. This withdrawal had much to do with a deal between them and Activis, which ensured the latter an option to buy Rhythm’s gastrointestinal drug subsidiary. Even so, playing witness to their underperforming contemporaries likely soured the idea of an IPO even further.

Unless companies like Tokai and Proteon start performing better—and fast—the string of biotech IPOs for 2014 could stay right at 16. Previously hopeful companies with tentative plans to go public may have to keep stalling until market conditions change. It appears the “machine” may be decisively shut down for the year.

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