Can­did Truths From A Biotech IPO

Tak­ing a biotech com­pa­ny pub­lic is a com­pli­cat­ed jour­ney with nu­mer­ous chal­lenges. On the heels of Anap­tys­Bio’s suc­cess­ful IPO ear­li­er this year, John Car­roll asked me to share some can­did truths from the per­spec­tive of a biotech CEO that has lived through the twists and turns of the IPO process. Be­low are my first-hand ob­ser­va­tions, writ­ten as friend­ly ad­vice to any biotech CEO eye­ing the pub­lic mar­kets:

TTWs Are Your Friend
Al­most every pre-IPO biotech is like­ly to fit with­in the emerg­ing growth com­pa­ny de­f­i­n­i­tion of the JOBS Act, which al­lows you to con­fi­den­tial­ly pitch your po­ten­tial fu­ture IPO to po­ten­tial in­vestors that are al­lowed to pro­vide high-lev­el feed­back re­gard­ing their in­ter­est. These con­ver­sa­tions, called Test­ing-The-Wa­ter Meet­ings (TTWs), are the sin­gle great­est tool in your IPO tool­box. TTWs al­low you to de­vel­op re­la­tion­ships with in­vestors, un­der­stand which are like­ly to in­vest in your IPO and how they view you rel­a­tive to com­pa­ra­bles. The biggest mis­take you could make is not to take ad­van­tage of this op­por­tu­ni­ty to ed­u­cate po­ten­tial in­vestors about your val­ue dri­vers, and show them your progress over time to­wards key mile­stones. Know­ing your sto­ry in ad­vance will help in­vestors make an ed­u­cat­ed de­ci­sion dur­ing the lim­it­ed time­frame of the IPO road­show. Be­fore launch­ing our IPO, we at Anap­tys­Bio con­duct­ed ap­prox­i­mate­ly 100 TTWs across 40 dif­fer­ent well-known pub­lic mar­ket biotech in­vestors.

ECM Is The Epi­cen­ter
Ir­re­spec­tive of which in­vest­ment banks you choose to use, the most im­por­tant fac­tor in the ex­e­cu­tion of your IPO will be the Eq­ui­ty Cap­i­tal Mar­kets (ECM) per­son(s) in your syn­di­cate. It is easy to over­look ECM peo­ple be­cause they will not be the most vis­i­ble, bois­ter­ous or well-coiffed mem­bers of the bank­ing team. But make no mis­take, ECM peo­ple are specif­i­cal­ly re­spon­si­ble for in­ter­act­ing with in­vestors, and will there­fore have the best un­der­stand­ing of what the mar­ket thinks of your sto­ry. You need to work with an ECM crew that is dili­gent­ly work­ing on your com­pa­ny’s be­half, is not dis­tract­ed by oth­er pri­or­i­ties and can pro­vide hon­est feed­back with­out sug­ar coat­ing. Keep that in mind as you eval­u­ate in­vest­ment banks.

Cross-Overs Mat­ter
A pre-IPO pri­vate fi­nanc­ing round with heavy par­tic­i­pa­tion from pub­lic mar­ket in­vestors, known as a cross-over round, is a big con­fi­dence boost to any biotech IPO. Da­ta shows that com­pa­nies with a cross-over round built bet­ter IPO or­der books, were more like­ly to suc­cess­ful­ly price with­in their IPO price range and have trad­ed bet­ter once pub­lic. It is dif­fi­cult to know whether it is ac­tu­al­ly the cross-over round that makes the IPO more suc­cess­ful, or that the qual­i­ty of the com­pa­nies able to at­tract a cross-over round would have had bet­ter IPOs any­way – but in ei­ther case a cross-over is high­ly rec­om­mend­ed. The re­al rea­son you want to do a cross-over round is to in­crease the po­ten­tial in­sid­er par­tic­i­pa­tion in your IPO raise – which back­stops your risk of not be­ing able to build an IPO book through the road­show. Think of it as in­sur­ance – you give up some di­lu­tion pri­or to the IPO but dra­mat­i­cal­ly in­crease your chance of get­ting the com­pa­ny pub­lic.

The Win­dow Is Gen­er­al­ly Ajar
You will hear many peo­ple spec­u­late about whether the pub­lic mar­ket is cur­rent­ly “open” or “closed” for IPOs. It is a mis­nomer to be­lieve that that the mar­ket, and specif­i­cal­ly in­vestors in­ter­est­ed in IPOs, are that bi­na­ry. While I agree that cer­tain pe­ri­ods are not a good time to launch an IPO (e.g. Sep­tem­ber/Oc­to­ber 2015 right af­ter Hillary’s fa­mous tweet), in­vestor ap­petite for your new is­suance will be dri­ven far more by the qual­i­ty of your sto­ry than mar­ket tim­ing. Hence the IPO win­dow is gen­er­al­ly “ajar”, mean­ing that in­vestors are al­most al­ways on the look­out for qual­i­ty in­vest­ment op­por­tu­ni­ties ir­re­spec­tive of macro mar­ket noise. Ed­u­cat­ing them in ad­vance through co­pi­ous TTWs (see above), and fo­cus­ing on clin­i­cal da­ta cat­a­lysts (see be­low), can shield your IPO against wob­bly mar­ket con­di­tions.

Nav­i­gate to Clin­i­cal Da­ta
Pub­lic mar­ket in­vestors are gen­er­al­ly look­ing for a tan­gi­ble path to post-IPO val­ue in­flec­tion points, which for most biotechs means clin­i­cal da­ta cat­a­lysts. The longer it takes for an in­vestor to un­der­stand what, when and how you will gen­er­ate mean­ing­ful clin­i­cal da­ta, the more like­ly they are to dis­en­gage. The pri­ma­ry fo­cus your IPO pitch ought to be on your most ad­vanced pro­gram(s) and their prox­i­mal clin­i­cal read­outs, where “prox­i­mal” means the next 18 months. A longer hori­zon to clin­i­cal da­ta is like­ly to im­pact your in­vestor ap­peal.

Al­lo­cate For The Long-Term
As you de­vel­op re­la­tion­ships with pub­lic mar­ket in­vestors, you need to un­der­stand who is like­ly a long-term in­vestor that will buy IPO shares and hold them through thick and thin, ver­sus who has a short-term mo­men­tum men­tal­i­ty that will lead to dis­ap­pear with small gains (or loss­es) short­ly post-IPO. While every in­vestor is en­ti­tled to their own strat­e­gy, biotech com­pa­nies are gen­er­al­ly best served by pa­tient cap­i­tal that can help build val­ue over time. The per­for­mance of your stock post-IPO will heav­i­ly de­pend up­on what pro­por­tion of your IPO buy­ers are long-term ver­sus mo­men­tum. IPOs filled with mo­men­tum play­ers are more like­ly to “break is­sue” short­ly af­ter pric­ing and find them­selves in a tough spot for ex­tend­ed pe­ri­ods of time. Fig­ure out which in­vestors are most­ly like to take a long-term view, fo­cus on con­vinc­ing them to par­tic­i­pate in your IPO or­der book and al­lo­cate as many IPO shares to them as pos­si­ble.

The CEO Ref­er­en­dum
While you may have dealt with VCs dur­ing your pre-IPO life, pub­lic in­vestors are a whole new lev­el of scruti­ny. Of course your de­vel­op­ment pro­grams need to be well po­si­tioned, and of course your CMO needs to be cred­i­ble and yes your CFO needs to be ex­pe­ri­enced – but in ad­di­tion to all that YOU as CEO need to be rock sol­id. Pub­lic in­vestors will push you, test you, dili­gence the heck out of you and will on­ly in­vest if they can look you in the eye and see con­vic­tion. Tell them why you be­lieve in the com­pa­ny and show them how you will ex­e­cute. Bot­tom line: IPOs are a very pub­lic ref­er­en­dum about the CEO of a biotech com­pa­ny. Wel­come to the big leagues.

Hamza Suria is the CEO of Anap­tys­Bio, a San Diego-based de­vel­op­er of ther­a­peu­tic an­ti­bod­ies. Biotech Voic­es is a con­tributed col­umn from se­lect End­points News read­ers. Con­tact the pub­lish­er, Ar­salan Arif, for more de­tails.

Cell and Gene Con­tract Man­u­fac­tur­ers Must Em­brace Dig­i­ti­za­tion

The Cell and Gene Industry is growing at a staggering 30% CAGR and is estimated to reach $14B by 20251. A number of cell, gene and stem cell therapy sponsors currently have novel drug substances and products and many rely on Contract Development Manufacturing Organizations (CDMO) to produce them with adherence to stringent regulatory cGMP conditions. Cell and gene manufacturing for both autologous (one to one) and allogenic (one to many) treatments face difficult issues such as: a complex supply chain, variability on patient and cellular level, cell expansion count and a tight scheduling of lot disposition process. This complexity affects quality, compliance and accountability in the entire vein-to-vein process for critically ill patients.

A lab technician works during research on coronavirus at Johnson & Johnson subsidiary Janssen Pharmaceutical in Beerse, Belgium, Wednesday, June 17, 2020. (Virginia Mayo/AP Images)

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The 28 players now in or close to the clinical race to get a Covid-19 vaccine over the finish line are angling for a piece of a multibillion-dollar market. And being first — or among the leaders — will play a big role in determining just how big a piece.

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Inside FDA HQ (File photo)

The FDA just ap­proved the third Duchenne MD drug. And reg­u­la­tors still don’t know if any of them work

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On Wednesday the FDA approved the third Duchenne MD drug, based on the same biomarker. And regulators were ready to act yet again despite the lack of efficacy data.

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Stéphane Bancel speaks to President Donald Trump at the White House meeting on March 2 (AP Images)

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Operation Warp Speed is reserving $1.525 billion for 100 million doses of Moderna’s Phase III mRNA candidate, rounding out to about $15 per dose — including $300 million in incentive payments for timely delivery. Given that Moderna has a two-dose regimen, it’s good for vaccinating 50 million people. The US government also has the option to purchase another 400 million doses for a total of $6.6 billion, or $16.5 per dose.

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Cal­lid­i­tas bets up to $102M on a biotech buy­out, snag­ging a once-failed PBC drug

After spending years developing its oral formulation of the corticosteroid budesonide, Sweden’s Calliditas now has its sights set on the primary biliary cholangitis field.

The company will buy out France-based Genkyotex, and it’s willing to bet up to €87 million ($102 million) that Genkyotex’s failed Phase II drug, GKT831, will do better in late-stage trials.

Under the current agreement, Calliditas $CALT will initially pay €20.3 million in cash for 62.7% of Genkyotex (or €2.80 a piece for 7,236,515 shares) in early October, then circle back for the rest of Genkyotex’s shares under the same terms. If nothing changes, the whole buyout will cost Calliditas €32.3 million, plus up to  €55 million in contingent rights.

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Thermo Fisher Scientific had announced an $11.5 billion takeover of Dutch diagnostics company Qiagen back in March, but the deal apparently did not sit well with Qiagen investors.

After getting hammered by critics who contended that Qiagen $QGEN was worth a lot more than what Thermo Fisher wanted to spend, investors turned thumbs down on the offer — derailing the buyout even after Thermo Fisher increased its offer to $12.6 billion in July. Qiagen’s share price has been boosted considerably by Covid-19 as demand for its testing kits surged.

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Xuefeng Yu in Hong Kong, 2019 (Imaginechina via AP Images)

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Xuefeng Yu and his team managed to keep doing both.

More than a month after CanSino’s Covid-19 vaccine candidate is authorized for military use in China, the Hong Kong-listed company has made a roaring debut in Shanghai. It fetched $748 million (RMB$5.2 billion) by floating 24.8 million shares, and soared 88% on its first trading day.

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Bayer's Marianne De Backer with Endpoints founder John Carroll, Endpoints@JPM20 (Jeff Rumans for Endpoints News)

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