RALEIGH, N.C. – Triangle biotechnology firms lost no time in taking advantage of hot public markets that opened a window for biotech initial public offerings of stock. Last year, 52 life science firms went public, more than the combined number of biotech IPOs for the previous three years and the most since 2000.

Four of those were Triangle-based firms including Quintiles, Chimerix, Liposcience and Heat Biologics, which raised a total of $1.14 billion – more total money than raised by Boston and New York biotech IPOs combined.

Fourteen more launched IPOs in February and many more are lined up, notes Peter Ginsberg, vice president of Business and Technology Development at the North Carolina Biotech Center. Two more Triangle biotech firms also launched IPOs this year, Argos, which raised $45 million, and NephroGenex.

How has this affected life sciences fundraising in North Carolina?

John Ryals, founder and CEO at 140-employee Metabolon, which has raised a total of $60 million in venture funding including a recent $15 million round, indicated that the open IPO window seems to be providing a lot of investor liquidity in the life sciences and biotechnology space.

“As investors see that there are again ways to realize gains that this should stimulate further investments. At least you would think so logically,” said Ryals. “My ear on the scene seems to indicate private rounds are being done at better terms now.”

That’s a big improvement from 2008, when Metabolon had to postpone fund-raising efforts due to the recession.

What’s really important now is how long the window stays open in the local fund-raising environment, both for companies and for venture funds.

“The window opened quite wide for us,” says Ginsberg. “It has been driven largely by performance.”

According to Ginsberg, the Biotech Index was up 65 percent last year and outperformed the S&P 500 by 30 percent. In 2012, continued Ginsberg, the Biotech Index was up 32 percent and outperformed the S&P by 16 percent; it outperformed the S&P in 2011 as well. Added Ginsberg, “so, this window has been a strong one for the industry.”

Not only that, he said, but the life science and biotech IPOs generally performed well after pricing, although there are signs investor interest may be cooling.

How long can the window stay open?

“There is reason for concern,” said Ginsberg. “The window can stay open only so long.”

Ginsberg explained that one reason for the burst of biotech IPOs in recent years is that previously “life science industry specialists were sole investors. But, because biotech stocks performed so well, more generalist investors with less biotech savvy began investing as well.”

The NC Biotech Center provided hard to find early stage funding to two of the North Carolina firms that went public, Argos and Heat Biologics.

The ability to raise the considerable sums possible through an IPO can be particularly important to biotech firms. Ginsberg points out that it enables them to do expensive late-stage clinical trials.

“When the IPO window was closed, they had to raise tremendous amounts privately or depend on a partner to fund them,” he added. “Any activity that brings more significant funding to companies makes a big difference.”

Dennis Dougherty, founder of Durham’s Intersouth Partners, which invested in Argos and many other regional biotech, medical device and pharmaceutical firms, noted that these biotech and life sciences IPOs “are not exit events; they’re financing events.”

“They augment cash reserves to complete clinical trials, get FDA approval,” said Dougherty. “Almost always, venture capital investors have to invest along with the public.”
Many of those venture investors take long lock-ups before they can cash out.

These companies, Dougherty explained, need lots of cash and most have had many rounds of venture investment before they launch an IPO.

“Every round you raise, the smaller the candidate pool for new investors gets,” he said. “Many were at the end of that rope when the public markets opened. Even when they successfully launch IPOs, they’re not raising the kind of money that can reflect the billions some of their products may eventually be worth.

“In the long term, it will be great,” Dougherty added. “The Southeast could have a bunch of very successful billion dollar companies. Many had millions in investments and products that are far along.”

The watershed era

We may look back on 2010 through 2015 as a watershed period for the region’s biotech economy and reputation, he suggested. While you always see soft spots off and on with these open IPO windows, he still believes that this one will remain open through 2015.

“Back in the 1990s I could tell when a window was ready to close,” he closed. “You’d see crappy deals. All the ones I see now are still pretty good.”