The IPO Buzz: Genes, Drugs and Clarity

It looks as if the only IPOs to get out the door so far this year are from the health-care sector plus a “blank check” offering. This week has two health-care deals and one “blank check.” Nevertheless, the mislabeling of certain health-care IPOs creates a case of mistaken identity.

The financial press insists on labeling this year’s four health-care IPOs as “biotech” deals. Two were, while two were not, according to the U.S. Securities and Exchange Commission(SEC).

For the record, when a company files plans to go public, the SEC assigns what is called a Standard Industrial Classification (SIC) Code number to the filing. That number identifies the company’s type of business and appears in its EDGAR filing. The SEC’s SIC Code numbers can be found here: SIC Code.

The Biotech Sector


Digging a little deeper, we see: “Biotechnology is the use of living systems and organisms to develop or make products, or any technological application that uses biological systems, living organisms or derivatives thereof, to make or modify products or processes for specific use,” according to Wikipedia.

In short: Genes.

So far in 2016, two IPOs in the biotech sector have been priced:

AveXis (AVXS) is a clinical-stage gene therapy company developing novel treatments for patients with rare and life-threatening neurological genetic diseases. Its initial product candidate, AVXS-101, is a gene therapy product candidate currently in a Phase 1 clinical trial to treat spinal muscular atrophy, the leading genetic cause of infant mortality.

AveXis was priced at $20 per share on Feb. 10 and closed Friday, Feb. 26, at $19.45, DOWN 2.6 percent from its IPO price.

Editas Medicine (EDIT) is developing a proprietary genome editing platform based on CRISPR/Cas9 technology. CRISPR/Cas9 uses a protein-RNA complex composed of the Cas9 enzyme bound to a guide RNA molecule designed to recognize a particular DNA sequence. The RNA molecule guides the Cas9 complex to the place in the genome that requires repair. Once there, the complex makes a specific cut in the DNA, ultimately triggering the cell’s DNA repair machinery to address the genetic defect.

Editas was priced at $16 per share on Feb. 2 and closed Friday at $27.49, UP 71.8 percent from its IPO price.

The Pharmaceutical Sector

The SIC Code number 2834 stands for PHARMACEUTICAL PREPARATIONS.

Just to be clear: “The pharmaceutical industry develops, produces, and markets drugs or pharmaceuticals for use as medications,” according to Wikipedia.

In short: Drugs.

Two companies from the pharmaceutical sector have gone public so far this year:

BeiGene (BGNE) is a Beijing-based clinical-stage biopharma company focused on developing molecularly targeted immuno-oncology drugs to treat lymphoma, melanoma, ovarian, colorectal and other types of cancer.

BeiGene was priced at $24 per share on Feb. 2 and closed Friday at $29.75, UP 24 percent from its IPO price.

Proteostasis Therapeutics (PTI) is a Cambridge, Massachusetts-based biopharmaceutical company developing novel therapeutics to treat diseases caused by an imbalance in the proteostasis network.

Proteostasis was priced at $8 per share on Feb. 10 and closed Friday at $6.08, DOWN 24 percent from its IPO price.

A Study in Contrasts

But there is more to this tale of two sectors than a difference in SIC Code numbers in the SEC’s EDGAR database.

Worth noting: The pharmaceutical sector has outperformed the underlying U.S. stock market over the past 52 weeks.

In contrast, the biotech sector has been an underperformer.

Here are their scorecards:

The Dow Jones U.S. Pharmaceutical Index (DJUSPR) was DOWN 6.4 percent for the last 52 weeks as of the close on Friday, Feb. 26, outperforming the loss of 7.43 percent over the same period for the S&P 500.

The Dow Jones U.S. Biotechnology Index (DJUSBT) was DOWN 19.1 percent for the last 52 weeks as of Friday’s close on Feb. 26, faring far worse than the 7.43 percent loss over the same period for the S&P 500.

Taking Aim at Tumors

This week’s IPO calendar has two pharmaceutical offerings (SIC 2834) and a “blank check” deal. The “blank check” IPO, KLR Energy Acquisition (KLREU – proposed), and one of the SIC 2834s, Advanced Inhalation (AITPU), are carryovers from last week. That leaves us with Syndax Pharmaceuticals (SNDX – proposed) and it is a carryover from 2014. The deal was on the IPO calendar for the week of June 23, 2014, but was postponed and then withdrawn on Jan. 22, 2015.

Syndax Pharmaceuticals is a Waltham, Massachusetts-based clinical-stage biopharmaceutical company. Syndax is engaged in the development of entinostat, an oral drug, as a combination therapy in multiple cancer indications with a focus on tumors that are sensitive to immunotherapy, including lung cancer, melanoma, ovarian cancer and triple-negative breast cancer.

Bankers expect to price 4.4 million shares at $14 to $16 each on Wednesday evening to trade on the NASDAQ Global Market Thursday morning.

Since this is a leap year, February wraps up on Monday with an extra day – also known as Sadie Hawkins Day.

As far as IPOs are concerned, though, all eyes have already turned to March.

Stay tuned.

Disclosure: Neither the author nor anyone else on the staff has a position in any stocks mentioned, nor do we trade or invest in IPOs. The author and staff do not issue advice, recommendations or opinions.