Weathering the Storm: Products Divide the Successes Among the Biotech IPO Class of 2000
This article was originally published in Start Up
Executive Summary
Despite the market rise in the 2nd quarter of 2003, investor skepticism about biotech's IPO class of 2000 remains high--especially for those with no products in Phase III trials.
Despite the recent market rise in the 2nd quarter of 2003, investor skepticism about biotech's IPO class of 2000 remains high—especially for those with no products in Phase III trials.
We evaluated the 55 still-independent, US-traded companies with IPOs in 2000 and, not surprisingly, the companies facing the most punishing declines in value have no products in the pipeline. These firms have lost, on average, nearly 63% of their market cap over three years. And things still seem bleak even for the companies with a pipeline consisting of at least one Phase I or Phase II candidate—their valuations are down nearly 40%, on average.
Attaining the Phase III level can bring rewards—but there's no guarantee. Companies with at least one Phase III candidate have valuations that are 16% higher, on average, than their 2000 IPO levels. But a closer look at the data reveals quite a variation. The big winner—including The Medicines Co. , Telik Inc. , and AtheroGenics Inc. , that all have market caps exceeding their 2000 IPO by more than 150%—offset other companies that have not been as fortunate, like Durect Corp. and Allos Therapeutics Inc. , whose sharp declines in value resemble those of firms with no products in the pipeline. Indeed, what really separates winners and losers is less pipeline than development credibility: The Medicines Co., with just a few products in its pipeline, has nonetheless proven it can develop and sell a drug, Angiomax (bivalirudin); its valuation is up 164%. Praecis Pharmaceuticals Inc. , with five compounds in its pipeline, failed clinically with its most advanced project—and the market hasn't yet forgiven it. Its market cap has fallen 38% since its IPO.