Biotech IPO boom likely to continue in 2014
View is generally rosy — unless stimulus funds taper off
CAMBRIDGE — The boom in initial public offerings by biotech startups, which took many by surprise this year, looks likely to continue into 2014. But it could lose some steam if the Federal Reserve starts to withdraw the stimulus powering financial markets.
That was the view of industry dealmakers assessing the IPO market Monday during a panel discussion sponsored by the New England Healthcare Executives Group, a networking organization in the biotech and medical technology businesses.
So far in 2013, 34 biotech firms, including nine in Massachusetts, have completed IPOs, according to data presented by panel moderator Doug MacDougall, president of MacDougall Biomedical Communications, a Wellesley firm that consults with startups.
Some panelists said they have been working around the clock on stock offerings.
“We have three shifts, but we just don’t change out employees,” said Daniel B. Dubin, vice chairman of Leerink Swann, the Boston health care investment bank that has taken more biotechs public than any other US underwriter this year. “We hope 2014 is just as active as 2013.”
Dubin said there could be another 35 to 40 offerings next year if many of the biomedical companies that already have registered with the Securities and Exchange Commission to become publicly traded companies move forward. Dozens of these have registered confidentially, under a new law that allows them to gauge the interest of big investors before disclosing their plans.
But he acknowledged that valuations of newly public companies could be lower in 2014 than this year, when companies piggybacked on the rally in the broader stock market.
Another panelist, David E. Redlick, cochairman of the life sciences practice at law firm WilmerHale in Boston, suggested the number of biotech IPOs could drop to about 20 nationally in 2014 if the Fed begins, as expected, to taper the bond purchases that have pumped cheap money into the economy to spur the recovery.
“My own view is it’s being driven by the Fed,” Redlick said. When asked what kept him up at night, Redlick jokingly referred to the economist President Obama has nominated to chair the Federal Reserve. “I’m mostly worried about Janet Yellen’s health,” he said.
Yellen is widely expected to maintain the aggressive stimulus measures launched by Fed chairman Ben Bernanke until unemployment drops significantly.
Life sciences IPOs will be “on pause” through the Christmas holidays and the J.P. Morgan Healthcare Conference in San Francisco, a gathering in January that draws thousands of leaders in the biopharmaceutical industry, said Todd Foley, managing director of MPM Capital, a Boston venture firm that took seven of its biotech portfolio companies public this year.
But the “tidal wave” is expected to resume on Jan. 21, the first business day after the J.P. Morgan conference, when many companies should be ready to file papers with the SEC, he said.
Foley and other dealmakers said they were jittery about the prospect that venture capital firms — which hold as much as two-thirds of the shares in many newly public biotechs — could cash out of their investments when their six-month “lockup” periods expire, leading to a so-called stock dump that could send prices tumbling. But if the companies continue to meet research and sales milestones, they said, new investors will take the place of the exiting venture capital firms.
Other panelists raised concerns that US government research cuts, a tougher funding environment, and worldwide efforts to restrain health care costs could make the biotech business less attractive in the future.
But Peter Kolchinsky, managing partner at RA Capital Management, a Boston life sciences investment firm, said it was unlikely public payers — even in governments weighed down by mounting health costs — would refuse to fund treatments that save or prolong lives.
“Show me the death panel, the murderer, the Nazi who deprived little Timmy of his drug, and I’ll show you an unelected politician,” Kolchinsky contended.
Kolchinsky also said companies with the best ideas for new medicines or medical devices will always be able to find capital. Whether these ideas ever become successful products is always uncertain, he said, but that is the nature of investing in an industry that requires big risks to gain big rewards.
“Ten years from now, I’ll be laughing at some of the things I’m funding now,” Kolchinsky predicted. With the most intriguing biotech startups, he said, “I’m saying, ‘I can’t see how this isn’t going to work. But I’ll pay for a seat at the table to see how this fails.’ ”