US life sciences companies that went public this year were battered by August's market volatility, which wiped nearly $1.3 billion in market capitalisation from these initial public offerings (IPOs), says a new analysis.
The market's gyrations hit the 13 US life sciences IPOs completed in 2011 on US markets harder than the broader market, IPOs in general and biotechnology stocks as a whole, and by the end of August the return from these firms had moved into negative territory, down an average 7.4% from their IPO price compared the 17.2% gain they had realised by end-July, says the report, from financial services firm Burrill & Company.
Overall, the 13 life sciences IPOs fell 18.9%, with three advancers and 10 decliners compared to nine advancers and four decliners at end-July, it adds.
In fact, the life sciences IPOs had outperformed broader market indices by the end of July, but they are now significantly underperforming the Dow Jones Industrial Average, the Nasdaq Composite Index, the Burrill Biotech Select Index and the AMEX Biotech Index, says the report. As a class, they have also failed to match the performance of US IPOs overall, which were down 3% overall at end-August, according to Renaissance Capital.
"Investors took flight from risk in the recent market turmoil and that does not bode well for life sciences companies hoping to complete public offerings," says Burrill & Company chief executive Steven Burrill. "If the volatile market activity that characterised August persists, it could cause private life sciences companies to turn away from the IPO market and seek financing elsewhere," he warns.
In August, life sciences companies demonstrated a willingness to seek funding outside the US, and two such US firms did go public during the month, but on exchanges overseas; these were the renewable chemicals company EcoSynthetix, which completed a $101.6 million offering on the Toronto Stock Exchange on August 4, and medical device firm GI Dynamics, which closed an $85 million offering on the Australian Securities Exchange on August 30.
Overall, in August the US life sciences sector saw nearly six decliners for each advancer for stocks trading over $1 at the end of the month. With values depressed throughout the sector, this could fuel increased merger and acquisition (M&A) activity among cash-rich pharmaceutical companies looking to expand their pipelines, Mr Burrill suggests.
"Big pharma's problems have not gone away. The need to find new sources of revenue to replace income from sales of drugs going off-patent continues to fuel deal-making," he says, adding: "with values depressed, acquirers will likely find more bargains today when they go shopping. We could see a pick-up in activity between now and year-end."