Biotech Sector Heats Up

The biotech industry has been heating up. As of mid-February this year, the number of IPOs by biotech companies in 2014 has nearly reached 20, representing capital raising efforts of over $1.1 billion. During the first biotech boom era, the year 2000 saw the IPOs of 26 biotech companies, raising $1.9 billion.

This year, the IPO class of biotech companies represents a broad variety of biopharmaceutical endeavors, from gene therapy to protein therapeutics to personalized immunotherapies. As a result of an increased appetite for risk on the part of investors, the high uncertainty of a biotech venture has become easier to stomach.

Amsterdam-based uniQure offers the first, and currently, only approved gene therapy product in the European Union. Gene therapy is a promising new form of disease treatment that targets mutated DNA within a patient’s cells. The firm raised $82 million after issuing 5.4 million shares at $17 per share, 21% higher than the midpoint of its filing range.

As a company with a drug that has already been approved, uniQure is much more likely to succeed than other companies that may be in the earlier stages of developing a drug. In fact, in the drug development business, many early-stage compounds will never make it to market. The most promising compounds, after undergoing rigorous testing to ensure they will be safe in humans, take several years to reach clinical stage. Even then, based on past data for the productivity of pharmaceutical R&D, only 20% of candidates entering the clinical trial phase will receive FDA approval.

That biotech is heating up is also evident with the IPO of Eleven Biotherapeutics, which raised $50 million by pricing its shares at $10. Though the shares priced at 28% below the midpoint of the company’s filing range, Eleven’s stock price rose 8.5% on the first day of trading.

While uniQure’s gene therapy drug, Glybera, treats a rare condition called lipase deficiency (LPLD), Eleven’s lead drug candidate can treat dry eye disease (DED), a disease which 26 million patients in the United States are estimated to have. Thus, investors flocked to the stock despite the company having no approved drug, because the larger target market for Eleven’s potential product buoys the probability of commercial success for the company.

Another cause for the increasing investor interest in the biotech market this year is the success of biotech offerings last year.  In fact, while the number of companies that have offered shares in the public markets for the first time this year has surpassed 20, a number which is quite impressive already, it comes on the heels of a record-breaking 47 biotech IPOs in 2013.

Several companies in the 2013 IPO class that have been successful include Bluebird Bio, Aratana Therapeutics, and Foundation Medicine. Orphan drug development company Bluebird Bio raised $101 million on June 19 last year with a per-share price of $17. Now, Bluebird is 38% above its IPO price. On June 27, 2013, animal-care medicine company Aratana Therapeutics priced at $6, raising $35 million. Today, Aratana trades 243% above its IPO price. Third, personalized cancer therapy company Foundation Medicine sold nearly 6 million shares last September 25 for $18 per share, rising 96% on the first day to close at $35.35 per share. Now, Foundation is 76% above its IPO price.

For many investors, the current atmosphere of optimism in the biotech sector is reminiscent of that from a decade ago, after medical research brought visions of leaping advances in the industry. Specifically, April 2003 saw the completion of the Human Genome Project, an international research collaboration that led to the sequencing of the tens of thousands of genes that make up the human genome. With this level of detail and information, researchers could seek further understanding of human disease. Many biotech companies today are working towards the commercial realization of those past advances in medical research.

This year will be a hot year for the biotech sector with no shortage of companies entering the playing field.