The biotech industry is facing the likelihood of a long IPO dry spell, which could extend beyond what is being forecasted in other industries, according to a report by Reuters.
According to Reuters, the last biotech IPO was in November 2007 with Nanosphere, Inc., which develops diagnostic tests, and in the last few weeks, over half of the biotech companies in the IPO pipeline have dropped out, including drug delivery company CyDex Pharmaceuticals Inc., Xanodyne Pharmaceuticals, which focuses pain management, and Phenomix Corp, which specializes in diabetes treatments. Reuters reports that only five companies remain in the IPO pipeline.
Instead of IPOs, Reuters reports that biotech companies are continuing to turn to mergers; however, pharmaceutical companies are only interested in biotech companies that have products ready for sale, which means that they need to be past Stage 1 and Stage 2. Pharmaceutical companies are not interested in investing another five years in research and development right now. Rather, they are looking for products that can quickly replenish their pipelines.
When the IPO market returns, Reuters reports that biotech companies with marketable therapies for hepatitis C, cancer and Alzheimer’s therapies will be the best prospects for an IPO.
Having said this, Reuters reports that what may delay the return of the biotech IPO is the poor price of biotech stocks, and the fact that the biotech companies who have gone public have not increased their stock prices since their IPO. Reuters reports: "Only seven of the 61 biotech companies to have gone public since 2000 are currently trading above their IPO prices."
Thus, it appears that biotech is headed for a long IPO dry spell that is not likely to change course, until after the economy picks back up and the industry can show that IPOs make financial sense. In the meantime, biotech companies will have to continue to rely on alternative exit strategies.
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