October wraps up healthcare IPOs with another strong week as 2018 biotech explosion still on record pace.

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The News:

The Wall Street Journal reports that the pace of biotech IPOs in on track for a near-record year, although many are riskier due to being in earlier stages of development. The public funding rush has been heavily influenced by the FDA’s willingness to accelerate approval for promising drugs.

Recent examples include cell therapy developer Allogene Therapeutics (Nasdaq:ALLO) which raised $373M despite being years away from a potential drug approval since registration studies will not commence until H2 2019.

Rubius Therapeutics (Nasdaq:RUBY), another cell therapy developer, raised $277M despite having no products in clinical trials. An investigational new drug (IND) application for lead candidate RTX-134 should be filed next quarter.

And gene-therapy group Homology Medicines (Nasdaq:FIXX) raised $166M. Its lead candidate is only in Phase 1/2 development for treating phenylketonuria (PKU)–a rare, inherited metabolic disorder caused by an enzyme deficiency resulting in accumulation of phenylalanine and its metabolites in the blood. This can cause severe mental retardation and seizures, but potential regulatory approval is years away.

Through mid-October, 52 biotechs have raised $5.75B in IPO proceeds, the third most all-time after the $8.19B raised in 2014 and $7.06B raised in 2000 (inflation adjusted per Dealogic). Thirty seven percent are considered early stage, either preclinical- or Phase 1-stage. Leerink’s Geoff Porges says, “You better have your eyes wide open, as this industry is as risky as it’s ever been.”

Here’s a look at the healthcare IPO action for the final week of October, and as usual, biotech once again led the way:

Twist Bioscience Corp., which manufactures synthetic genes and other DNA-based products, raised $70 million by offering 5 million shares at $14, the low end of the range of $14 to $16. Twist, which is led by CEO Emily Leproust, has developed a proprietary way of manufacturing DNA by “writing” it on a silicon chip.

The company says in its prospectus that its technology “makes DNA synthesis scalable and less expensive than traditional methods.” In the nine months ended June 30, the company’s fiscal third quarter, the company generated $17 million in revenue, a 132% increase compared to the same period in fiscal 2017.

But Twist has still suffered a $51.4 million net loss. Twist Bioscience lists on the Nasdaq under the symbol “TWST.” J.P. Morgan and Cowen acted as lead managers on the deal. Shares closed the week unchanged at $14.

Elsewhere, Axonics Modulation Technologies Inc., which is commercializing a neural implant for overactive bladder and incontinence, raised $120 million by offering 8 million shares at $15, the midpoint of the $14 to $16 range.

The Irvine, CA-based med tech company has developed an implantable rechargeable neuromodulation device that stimulates the sacral nerve to treat overactive bladder, fecal incontinence and urinary retention. The system, called the r-SNM, delivers mild electrical pulses via a four-electrode lead inserted through the sacrum during a brief surgical procedure. A US marketing application is on tap for Q1 2019.

Axonics lists on the Nasdaq under the symbol “AXNX.” BofA Merrill Lynch and Morgan Stanley acted as lead managers on the deal. Shares closed the week up 7 cents at $15.07.

Orchard Therapeutics PLC, which is developing stem-cell gene therapies for rare diseases, raised $200 million by offering 14.3 million shares (up from the 13.3 million previously anticipated) at $14, the low end of the range of $14 to $16. London-based Orchard Therapeutics lists on the Nasdaq under the symbol “ORTX.” J.P. Morgan, Goldman Sachs and Cowen acted as lead managers on the deal. Shares closed the week unchanged at $14.

Alzheon Inc., a Phase 3 biotech developing small molecule therapies for Alzheimer’s disease, lowered the proposed deal size for its upcoming IPO on Friday. The Framingham, MA-based company now plans to raise $30 million by offering 6 million shares at a price range of $4 to $6. The company had previously filed to offer 2.5 million shares at a range of $13 to $15. At the midpoint of the revised range, Alzheon will raise 14% less in proceeds than previously anticipated. Alzheon was founded in 2013 and plans to list on the Nasdaq under the symbol “ALZH.” ThinkEquity and H.C. Wainwright are the joint bookrunners on the deal.

And, included among recent SEC filings for initial public offerings, Guardion Health Sciences Inc., which sells medical food for age-related macular degeneration and computer vision syndrome, registered up to $10 million worth of common stock.

The specialty health sciences company makes condition-specific medical foods, branded as Lumega-Z, that it says restores and replenishes the macular protective pigment in the eye, a risk factor for retinal diseases if depleted. It also has a device called the MapcatSF that measures macular pigment optical density.

The San Diego, CA-based company was founded in 2009 and booked $1 million in revenue for the 12 months ended June 30, 2018. It plans to list on the NYSE under the symbol “GHSI.” WallachBeth Capital is the sole bookrunner on the deal.

At least eight more biotechs are on deck for IPOs this year, including NGM Biopharmaceuticals with is mid-stage candidate for a type of fatty liver disease.

A total of 209 companies have gone public this year raising a total of $56.6B, second most behind the $88.92B raised by 249 companies in 2014 (per Dealogic).

Steve’s Take:

To put it mildly, this year has been a blistering one for biotech IPOs. In mid-September, there were 58, with the first listed on the BioPharmCatalyst database being Menlo Therapeutics on January 25, 2018. According to the Wall Street Journal, as of mid-October, 55 biotech companies had raised $5.75 billion. Obviously, the numbers depend somewhat on which database you check, but what is unambiguous is that 2018 has been an immense one for biotech IPOs.

As Mark Terry at BioSpace points out, several of this year’s biotech IPOs have been gigantic. Allogene Therapeutics, which was founded in 2017, raised $373 million in its IPO last month.

Rubius Therapeutics raised $277 million in its July IPO.

Homology Medicines raised $166 million in a March IPO and currently has a market value of more than $700 million.

Others include Tricida Inc. (South San Francisco), which raised $22.3 million in June, Germany-based MorphoSys AG, which raised $207.8 million in April, Bermuda-based Kiniksa Pharmaceuticals Ltd., which raised $152.6 million in May, and UK-based Autolus Therapeutics PLC, which raised $150 million in June.

Bottom Line:

One reason it’s been such a big year for biotech IPOs is there’s one heck of a lot of cash still parked on the sidelines, crying out for ROI. Other key factors are low interest rates and, as Bloomberg wrote in September, “a hunt for higher returns by institutional investors.” The Wall Street Journal suggests that accelerated approval modalities by the Food and Drug Administration also may be a factor. Perhaps investors interpret that as a possible sign that more nascent drugs will make it to the market faster.

Terry rightly notes that biotech investment is different than other types of tech investment. That’s because one of the primary business models for biotech startups is reaching Phase 1 or Phase 2 clinical trials and either partnering with a Big Pharma or being acquired by one. A typical strategy is raising funds to launch with a Series A, which will take the company through founding and preclinical trials. Another round, often Series B or later, will often afford funds to take candidates into early-stage trials, Phase 1 to get proof-of-concept, and sometimes into Phase 2.

Phase 3 trials are appreciably more expensive due to their size and scope, which is cause for collaborating with larger companies or attempting to raise even more capital through an IPO.

Although this year’s boom appears to be slowing, that’s not completely unexpected, says Terry. Hartaj Singh, an analyst with Oppenheimer, told Bloomberg in September, “We’ve already had a really good 12-month period. They don’t tend to be much longer than that.”

Singh may be correct, but my guess is that the 2018 biotech IPO rain dance is far from over. The huge corporate tax cuts leading to massive repatriation of profits from abroad and billions worth of stock buybacks have institutional shareholders sitting on a windfall of profits and mountain of new cash for investment. Even in these waning months, biotech IPOs still fit the bill rather nicely for that particular scenario.

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