Dominic ChavezEpizyme, a biotechnology company in
Cambridge, Mass., is working on drugs to treat leukemia and lymphoma.
8:28 p.m. | Updated When Onyx Pharmaceuticals, a cancer drug
developer, turned down a $10 billion acquisition bid by Amgen last month and put
itself up for sale, its share price soared more than 50 percent, touching off an
investor frenzy in biotechnology.
Among the beneficiaries was Epizyme, a newly public Massachusetts company
that some Wall Street analysts predict could also become a takeover target.
Shares of Epizyme, which is working on drugs to treat types of leukemia and
lymphoma, have risen 20 percent since July 1, and they have more than doubled
since the company’s initial public offering on May 31.
Six other biotechnology companies completed I.P.O.’s in June, and five or so
are lined up behind them — an incredible run considering the window for biotech
offerings had been all but slammed shut since the 2008 financial crisis. The hot
streak has been driven largely by the potential for deal-making in the industry,
investors and analysts said.
The feared “patent cliff” for brand-name drugs has caused billion-dollar
blockbusters like Pfizer’s cholesterol drug Lipitor and Bristol-Myers Squibb’s
blood thinner Plavix to lose ground to generic competition, so the
pharmaceutical industry has been hunting for innovation among small
biotechnology companies, as both takeover targets and licensing partners. There
were five acquisitions of venture capital-backed biotech companies in the second
quarter alone, according to data from Thomson Reuters and the National Venture
Capital Association.
“I think the big pharma companies are going to continue to look outside to
find the next wave of innovative therapies,” said Dennis Purcell, senior
managing partner of Aisling Capital, a life sciences venture capital firm based
in New York. On June 17, an Aisling portfolio company in San Diego, Aragon
Pharmaceuticals, which has a prostate cancer treatment in midstage human trials,
was bought by Johnson & Johnson for $650 million up front, plus the
potential for an additional $350 million in payments tied to research
milestones.
Still, biotechnology is more prone to disappointments than perhaps any other
industry — a risk that came to light not long before this recent run of
I.P.O.’s. In May, shares of a former high flyer, Aveo Pharmaceuticals, fell
nearly 50 percent when an advisory panel to the Food and Drug Administration
urged the agency to reject the company’s kidney cancer drug because of questions
about its efficacy.
That so many investors have been able to overlook such uncertainty and jump
into a new class of companies with unproved science shows a new tolerance for
risk on the public market, some experts say. The robust deal-making environment
helps.
“People are hungry for growth,” said Erik Gordon, a professor specializing in
life sciences entrepreneurship at the University of Michigan’s business school.
“When you see something like Onyx telling Amgen” its offering price is too low,
“you have to ask, what’s the downside? The downside is bad news, but if that
doesn’t happen, the company you’ve invested in could be taken out at a huge
gain.”
The 16 biotechnology companies that have gone public this year are up 48
percent on average from their offering prices, according to data provided by
Nasdaq. As of Tuesday, four of the top 10 performing companies on the Nasdaq
year-to-date were biotechs: Stemline Therapeutics, Bluebird Bio, Epizyme and
Prosensa Holding.
“The fact that these companies can get out reloads the capacity of the
venture funders” to turn to the public markets, said Samuel Isaly, managing
partner of OrbiMed Advisors, which manages the Eaton Vance Worldwide Health
Sciences Fund in addition to private equity and hedge funds. “We’re back to the
good old days of before the financial crash.”
The biotechnology I.P.O. market is so frothy, in fact, that some companies
are not waiting to take advantage of it. Hans Schikan, the chief executive of
the Dutch biotech company Prosensa, said he and his management team originally
planned their I.P.O. for a week or so after the Fourth of July holiday, but when
they saw the positive investor response to Epizyme and others, they rushed out
on June 28 instead. “When the window’s open, you’d better use it,” Mr. Schikan
said. Prosensa’s shares opened $7 above its $13 offering price and are up 102
percent so far. It closed up 1.1 percent in trading Thursday on the Nasdaq,
closing at $26.26.
One gateway for acquisitions in the biotech sector is research partnerships,
and those are increasing as well.
Epizyme did not start human testing of its lead drug until late last year,
but it attracted plenty of interest from big pharmaceutical companies long
before that. The company formed research partnerships with GlaxoSmithKline,
Celgene and Eisai, which together were worth $125 million in nonequity
financing.
Simos Simeonidis, an analyst at Cowen & Company, predicts that if one of
Epizyme’s two leading cancer drugs shows even a hint of success in clinical
trials, “a lot of big pharmas or big biotechs are going to want to own the
platform. The possibility of an acquisition in my mind would be very high,” he
said.
Several other members of this year’s biotech I.P.O. class have rich
partnerships. Bluebird Bio of Massachusetts signed a three-year oncology
research deal with Celgene in March, which included a $75 million upfront
payment. Bluebird’s I.P.O. was on June 19, and its stock has climbed 78
percent.
PTC Therapeutics, a New Jersey company that went public the next day and
raised $114 million, has a $30 million deal with Roche to study treatments for
spinal muscular atrophy, and an oncology partnership with AstraZeneca that
included an undisclosed upfront payment. Both deals included the potential for
milestone bonuses. Its shares have risen 9 percent. On Thursday, they rose 3.4
percent to close at $16.34.
Robert J. Gould, the chief executive of Epizyme, said he was aware that
research partnerships often blossomed into full-blown buyout offers. But “we
have no intention of positioning ourselves to be acquired,” he said. Bluebird
and PTC, both still in post-offering quiet periods, declined to comment.
Venture capitalists in life sciences predict that both the pace and the value
of licensing deals will accelerate. “Pharma certainly is evaluating every single
asset of every single company that’s out there and acting on it,” said Noubar
Afeyan, managing partner and chief executive of Flagship Ventures, an investor
in Agios Pharmaceuticals of Massachusetts, which announced its intention on June
10 to raise $86 million in an I.P.O. Agios has a $150 million cancer drug
development deal with Celgene.
It is not just cancer treatment that is generating excitement among
investors. Prosensa is developing drugs to treat Duchenne muscular dystrophy and
other muscle disorders. PTC has its own treatment for muscular dystrophy and is
also developing drugs to fight cystic fibrosis and infectious disease. The one
unifying theme in all the companies that have generated excitement on Wall
Street is the rise of personalized medicine, said Christoph Westphal, a longtime
biotechnology entrepreneur and a founder and partner of the Longwood Fund. “Many
companies that have done well recently have a specific molecular-medicine
approach to a serious disorder that has no other therapies,” he said.
Prosensa’s two lead drugs for muscular dystrophy, for example, are being
tested in small groups of patients whose disease is caused by specific genetic
mutations, which can be detected with diagnostic devices that the company is
using with the drugs.
Another factor in the biotech industry’s favor is that regulators have become
more supportive of drugs that address high unmet medical needs. In July 2012,
the Food and Drug Administration Safety and Innovation Act established the
“breakthrough therapy” designation, which gave the agency the authority to speed
its review of drugs to treat life-threatening ailments.
“The regulators, notably the F.D.A., have been particularly willing to come
up with new strategies to enable the rapid development of drugs for which there
is a dramatic effect in a defined patient population,” said Robert Tepper, a
partner at Third Rock Ventures, an investor in both Bluebird and Agios. “If you
can stratify the patient population you want to treat through genetic analysis,
for example, you can move quite quickly through early-stage trials.”
