Many investors typically start the New Year searching for prescient predictions. Armed with a raft of “foolproof” data they then take an oath to stick with new, rock-solid resolutions, usually, like yours truly, with the purpose of shrugging off bad decisions the previous year. But how many of these well-intentioned resolutions actually stick? And how can 2017 turn out even better that its predecessor? #Biotech accounts for 45% of total #healthcare capital raised with $8.16 billion from 27 deals Click To Tweet
Let’s begin by looking at 2016. A new analysis by global law firm Baker & McKenzie shows a record year for biotech led to a 2% increase in capital raised from all US healthcare IPOs in 2016 despite a 39% decline in the volume of listings. Capital raised reached $17 billion, largely driven by a 45% increase in proceeds from biotechnology companies, against a backdrop of political and regulatory uncertainty and poor economic performance of key markets.
Biotechnology, which includes healthtech listings–continues to dominate the sector in terms of value, accounting for 45% of total capital raised with $8.16 billion from 27 deals.
The emergence of healthtech IPOs continues to gain momentum, with eight listings in 2016 raising $2.4 billion. For those unfamiliar with the term, “healthtech,” or digital health, is the use of technology (databases, applications, mobiles, wearables) to improve the delivery, payment, and/or consumption of care, with the ability to increase the development and commercialization of medicinal products, says Baker. Noteworthy deals included Samsung Biologics, a world leader in biologics development and manufacturing, which listed on the Korea Exchange in November, raising a total of $2 billion.
UK-based ConvaTec, a global medical products and technology company, raised $2 billion via an IPO on the London Stock exchange. This listing was the largest European healthcare company to reach for the stars in London since 1993 and among the top ten largest healthcare IPOs world-wide.
“While healthcare IPOs volume slowed in 2016, the sector outperformed in a poor year for IPOs generally. Biotech companies had a record year, building on year-on-year growth. Healthtech companies seeking additional capital to commercialize their technologies globally and fund further research and development, are becoming more active as the potential for personalized healthcare attracts interest and investment.”
Despite uncertainty over the likely impact of Brexit, the London Stock exchange (including AIM) kicked Nasdaq from the top spot as the locus for most capital raised with $4 billion from six healthcare listings. Baker notes that Nasdaq continues to be the most dynamic stock exchange for number with 39 issues that garnered $2.4 billion.
Now that we’ve heard from the data folks who track and promulgate the statistical history behind the IPOs, let’s pivot to some of the insiders whose reputations and careers are literally on the line in 2017 and ponder what they see in their crystal balls.
Up first is Dr. Christopher Ianelli, founder and CEO of iSpecimen. His company is a supplier of human biospecimens to the life science industry, including pharmaceutical, diagnostic, and academic researchers.
“In 2016, ‘precision medicine’ reigned supreme as the catch phrase of the year,” he writes, according to STAT. Dr. Ianelli then goes on to predict, “‘Precision research,’ or the ever-more targeted research necessary to make good on the promise of precision medicine, will propel forward in 2017. Refined research questions requiring the interrogation of highly specific biospecimens and associated data sets will form the backbone of this precision research wave.”
Next, there’s the belief held by some that data still want to be free.
“In 2017, we’re going to see a new push for data transparency in health care,” according to Ahmed Albaiti, CEO and founder of Medullan, a digital health consulting firm. “Electronic health record vendors will be asked to share data sets to better understand what better serves smaller populations, utilizing real world evidence for population health management.”
Gathering serious momentum is the unsurprising (to me, at least) approach in oncology of successfully combining medicines and treatments.
“In 2017, because of favorable tolerability profiles of new drugs, combinations of multiple drugs will become even more the norm in oncology,” per Dr. Liviu Niculescu, vice president of medical affairs at Takeda Oncology. “Based on a growing body of research, companies are shifting toward developing increasingly targeted treatments or precision medicines that address specific issues at the cellular level and reduce systemic toxicity, opening the door for more combinations.”
Armed with the foregoing data and crystal-ball gazing, I predict 2017 is going to be a good year for IPOs. Not another 2015, which was a spectacular year for IPOs. If you take a 20-year context, 2017 is going to be a very good year; more like 2016; not spectacular but still pretty healthy.
We also should see a strong M&A spurt. It’s a setting wherein Big Pharma is hungry for new, promising products being developed by the IPO startups to replace their older medicines facing patent expiry. Either from the M&A context or as an investor in raw startups, it’s still tricky picking the right one. Take for example the following three Third Rock-backed public companies’ performance over the last three months:
- Bluebird Bio Inc. is up about 17%;
- Editas Medicine Inc. is up 35%; but
- Agios Pharma Inc., on the other hand, is down 14%.
It will also be interesting to track the early number of FDA approvals. 2016 was a relatively quiet year, whereas 2014 and 2015 were great years.
What about the level of growing innovation among some of these real-player wannabes?
I think we’re in a large secular bowl as far as innovation is concerned. Biotech is a very volatile sector so there will always be ups and downs. But we are really in a spectacular period of fundamental innovation.
So where are we going to see the leaps forward in innovation? Is it going to be in precision medicine, or regenerative medicine; perhaps stem-cell therapies?
The term “precision”–used in the context of new biotech discovery–is the reigning mantra going forward, along with “convergence” and “big data.” Precision medicine is targeted toward the individual–the right drug for the right patient. Blueprint Medicines Corp. is an example of this. The company researches and produces medicines and treatments for cancer targeting the molecular differences. Its focus is on selective drugs for genomically defined cancer patients.
And what about big data? This is another important trend currently being termed “convergence.” It’s where big data is brought in to point us in the right direction. This is where IBM Watson Health is heading and could ultimately become the global dominator. (Keep an eye on this IBM unit for a potentially titanic, new float.)
How do you approach investing when there are so many new companies, each one starting up with a new drug? Exactly how do you separate the wheat from the chaff?
That’s the big trick, as always, says Alexis Borisy, a Third-Rock venture partner. There are so many possibilities and so many places to look for them; the trick is to look at the places where you have the right teams, the right fields of science and medicine where you can create something truly transformative. It’s not easy.
What about the regional perspective? Is it all about Boston and San Francisco? What about Asia and Europe?
There is spectacular science and innovation occurring on a global basis. But there’s no question that Boston/Cambridge and the San Francisco Bay Area will continue to be the two dominant hubs in the near- to mid-term. Looking outside the US, after the record-breaking year of 2015, European biotech stock markets exercised more caution in 2016. However, according to a new report cited by European Biotechnology, this represents a “healthy reset” rather than a new crisis.
As far as global IPO capital markets are concerned, despite questions over the potential impact of Brexit, the London Stock exchange (including AIM) knocked Nasdaq off the top spot as venue for most capital raised with $4 billion from six healthcare listings, according to Baker. Nasdaq continues to be the most active exchange for volume with 39 listings raising $2.4 billion.
The Hong Kong Stock Exchange (including HK Gem) saw 8 healthcare companies raising a total of $2 billion. Of this total two were cross-border, China-based private hospital groups, raising a total of $257 million, with both companies headquartered in China.
There was a distinct drop in cross-border healthcare issues consistent with the overall market, with 15 listings raising $1.6 billion, down from $4.8 billion in 2015. The number of cross-border listings from pharma companies, customarily the most active segment, declined from 21 in 2015 to 3 in 2016. Exchanges in North America continue to attract the biggest number of cross-border listings of companies eyeing higher valuations from large and well-versed investor bases.
Finally, what about the political situation here in the US and how will it impact the IPO environment? Will it be positive or negative? In particular, how will Mr. Trump affect the investment environment?
There are lots of uncertainties, to be sure. But there are a lot of potential positives, starting with possible changes in the US corporate tax structure that would incentivize companies to bring back a lot of cash that’s trapped overseas. And I mean tons of cash.
And there’s M&A, which could have a turbocharge effect on the entire investment scene. Big Pharma is hungry for new product and the IPO sector is raring to fuel that furnace.Steve's Take: #Biotech is a world fraught with risk and disappointment. But also #hope. Click To Tweet
Finally, biotech IPOs aren’t just about pricing margins, bottom lines and ROI. It’s easy to get swept up in the cutting-edge science, the numbers game and New Year’s investment resolutions. Let’s not forget that drug discovery offers the best, and often only, chance for families struggling with rare, life-threatening disease. It’s a world fraught with risk, setbacks, disappointment, and dejection. But also hope. Occasionally, everyone wins.