Weathering the Storm: A Look at What Happened to the Class of 2000 IPOs

It's no secret that biotech's IPO class of 2000 has suffered. Even given the market's rise in the 2nd quarter of 2003, these companies have lost an average of 40% of their market cap over three years.

It's no secret that biotech's IPO class of 2000 have suffered. Even given the market's rise in the 2nd quarter of 2003, these companies have lost an average of 40% of their market cap over three years. For the 55 US-traded companies with IPOs in 2000 that are still independent, valuations have plummeted: 84% of them are below their 2000 IPO valuations as of June 2003. (We excluded internationally traded companies to avoid interspersing the data with non-US market fluctuations.)

So should investors have bailed out of these companies through mergers—the most common being stock-swap deals? Hardly. Twelve US-traded companies with IPOs in 2000 were acquired by other biotechs, leaving investors with relatively illiquid shares whose value continued to languish after the merger. In the graph below, we show that not only was the average company acquired at a steep discount from its IPO valuation, but the current value of the company's stake in its acquirer makes its value decline, relative to its original IPO valuation, even steeper than the decline of the average still-independent company. (For those companies acquired for cash, we kept the acquisition value constant from date of acquisition.)

One could argue that companies acquired were those least likely to survive on their own. But it also seems likely that, in many instances, acquisitions did more harm than good.

And independence at least brought rewards to a handful of firms. Nine of the 55 companies have market values above their IPOs; and four of the nine—The Medicines Co. , Esperion Therapeutics Inc. , AtheroGenics Inc. , and Telik Inc. —now have valuations in excess of 100% of their 2000 IPO market caps.