Even as the biotechnology industry remains on track for its best year for initial public offerings since at least 2007, some have begun asking how long the party can last.
Two more Massachusetts biotechs — Acceleron Pharma Inc. and Bind Therapeutics Inc., both based in Cambridge — registered to go public over the past two weeks. That brought to eight the number of biotechnology companies in the state that have completed or filed for IPOs in 2013, and several more have been getting ready to file their papers, industry insiders said.
But with the broader financial markets retreating sharply this month and some market watchers warning the pullback could intensify, the lawyers, accountants, and investment bankers that advise biotech entrepreneurs are thinking harder about the timing of going public.
“There’s definitely lots of conversations with bankers and companies contemplating IPOs about the timing,” said Gabor Garai, chairman of the private equity and venture capital practice at Boston law firm Foley & Lardner. “Some people are accelerating their plans to go public because they don’t know how much longer the window is going to be open.”
Jonathan Gertler, senior partner at Boston consulting firm Back Bay Life Science Advisors, said biotech investing — often involving more risk than other investments — is a “lagging indicator” of a robust economy but generally tracks overall financial markets.
“Biotech investors tend to be longer holders of stocks and more sophisticated in their understanding of the sector,” Gertler said. “But certainly their appetites for risk will retreat as the market retreats.”
Until recently, the benchmark Dow Jones industrial average had been climbing steadily this year, creating an environment friendly to IPOs of all kinds. But the stock index has slipped 2.7 percent in August. So far there is no sign that has dampened enthusiasm for biotechnology stocks, which have outperformed the market at large, but industry insiders are clearly taking note.
“It’s always hard to predict the end of these [IPO] windows,” said Glen Giovannetti, the Boston-based global biotechnology leader for accounting and consulting firm Ernst & Young. “One of the things to watch for is if there’s a number of new companies that debut and trade sideways or down. That could be a sign that things are slowing down. But we haven’t seen that yet.”
Indeed, all five Bay State biotechs that have completed IPOs this year — Enanta Pharmaceuticals Inc. and Tetraphase Pharmaceuticals Inc. of Watertown and Cambridge-based Epizyme Inc., Bluebird Bio Inc., and Agio Pharmaceuticals Inc. — continue to trade comfortably above their opening prices despite the stock market dip.
Whether their market values can be sustained in the face of a deeper sell-off on Wall Street remains to be seen. But some financial professionals suggest investors in biotechnology — a business with longer-term horizons — are more focused on the prospects for companies’ experimental drugs and less concerned about the cyclicality of the markets.
“The companies that have recently gone public and are planning to go public are developing innovative financial platforms that are going to support the industry for the next 10 to 15 years,” said Dan Dubin, vice chairman of Leerink Swann, the Boston health care investment bank that underwrites biotechnology stock offerings. “These companies have breakthrough drug discoveries and have the potential to create the next generation of medicines to treat patients.”
But many start-ups, including life sciences companies, have canceled or postponed new stock issues during past periods of market uncertainty. So the market debuts of Acceleron and Bind, both of which filed registration statements with the Securities and Exchange Commission this month, could prove to be a test of the biotech IPO market’s health. Company executives are prevented from commenting by a pre-offering “quiet period” imposed by the SEC.
Acceleron, which is developing a drug to treat rare blood disorders, is seeking to raise $86.2 million through its IPO, according to its SEC filing. Bind, which wants to raise up to $80.5 million, is developing a class of drugs to treat lung cancer and prostate cancer.
A third Cambridge biotech, Foundation Medicine Inc., which is developing a diagnostic system to match cancer patients with the most effective treatments, registered for an IPO at the end of July, saying that it would also try to raise $86.2 million.
“Biotech companies are capital intensive,” Gertler said. “And given their models, it’s preferable for them to be able to access the financial markets.” But given the fresh investor uncertainty, he said, such companies might be best off to continue preparing for their IPOs but to reassess the market conditions before they price their shares.
“These stocks will go forward and backward with the general market,” he said.