In early 2013, the idea that, within a few months, a discussion on IPO trends by Israeli life sciences companies on Wall Street would be held would have seemed ridiculous. But even then, it was known that the life sciences were hot items on Wall Street and that the IPO window was open. However, it was not possible to know how long it would stay that way, and if was open for Israeli and other companies.
Alcobra Pharmaceuticals Ltd. (Nasdaq: ADHD), Kamada Ltd. (Nasdaq: KMDA); TASE: KMDA), and Enzymotec Ltd. (Nasdaq: ENZY) have already held offerings this year, making 2013 the best year for offerings by Israeli life sciences companies on Wall Street since 2000.
In addition, Mazor Robotics Ltd. (Nasdaq: MZOR; TASE:MZOR) and Evogene Ltd. (TASE:EVGN; Pink Sheets: EVENF), which have already listed American Depository Receipts (ADRs), are planning large offerings later this year. Galmed Pharmaceuticals Ltd. is considering a Wall Street offering, and other companies are testing the waters.
Many life sciences companies on the Tel Aviv Stock Exchange (TASE) have also listed on Nasdaq: BiolineRX Ltd. (Nasdaq: BLRX); TASE:BLRX), Can-Fite BioPharma Ltd. (TASE:CFBI; Bulletin Board: CANFY), Hadasit Bio Holdings Ltd. (TASE:HDST; Bulletin Board: HADSY), and RedHill Biopharma Ltd. (Nasdaq: RDHL); TASE: RDHL); and Bio-Light Israeli Life Sciences Investments Ltd. (TASE:BOLT) and Kitov Pharmaceutical Holdings Ltd. (TASE: KTOV) have both announced their intention of following suit.
December is set to be a hot month for offerings, and every company that wants to exploit the open window is presumably preparing to do so. Do the Israeli companies that have held offerings so this year have something special or an edge compared with their foreign peers? It seems that they do. Although the offerings by the Israeli companies were held below target, which is normal on Wall Street, two of the offerings - by Alcobra and Kamada - have subsequently had strong upsides, far above the 40% gain by the Nasdaq Biotechnology Index since the beginning of the year, although it is now slipping amid the US government shutdown.
There have been 39 IPOs by life sciences companies on Wall Street so far this year, the largest number since 2000, and seven prospectuses have already been filed for offering by year end. The companies raised $3 billion altogether, not including the $2.2 billion IPO by Pfizer Inc. (NYSE: PFE; LSE: PFZ) animal healthcare unit Zoetis Inc. (NYSE: ZTS). The average post-IPO upside is 60%, including Zoetis.
The sector is not only benefiting from the performance of the Nasdaq Biotechnology Index, but from Jumpstart Our Business Startups Act (JOBS), which came into effect in 2012 and eases regulations for R&D-based start-ups in the first years as public companies. About half of the US companies went public at just over their target price, compared with none of the Israeli companies. It is possible that the Israeli companies should have given the feeling of a bargain to stir up interest among US investors, who are unfamiliar with the companies and have not followed them for years. Nonetheless, what the companies lost in their offerings, they have since made up in their upsides. No Israeli company has suffered the misfortune of Fate Therapeutics Inc. (Nasdaq: FATE), which held its IPO on October 1, at less than half its target price, partly because of the drop in the Nasdaq Biotechnology Index.
Building an Israeli brand
The sequence of three successful offerings could be important toward building an "Israeli biotechnology brand". Until now, the attitude in the US toward these companies has been ambiguous. Several bitter disappointments - Pharmos, XTL Biopharmaceuticals Ltd. (Nasdaq:XTLB); TASE:XTL), Rosetta Genomics Ltd. (Nasdaq:ROSG) (which is now trying to rebuild itself), and Epix (which closed after its merger with an Israeli company) - which resulted in investors wary of the sector, together with wariness about everything foreign and not closely monitored. This attitude is now changing.
Oppenheimer & Co. analyst Stuart Barich told "Globes", "The market is completely open for every good company, and Israeli companies are definitely successful in showing that they are good. I believe that, assuming that the window stays open, we will soon see many quality offerings, but also less good ones."
"Globes": Are there regulars among investors in offerings by Israeli life sciences companies on Wall Street, or is every offering different?
Barich: "Each offering is very different, but all the big investors are experts. It's impossible to jump into the sector now just because it's hot."
Caution is still advisable for investors already familiar with the sector. "American underwriters are in Israel now, offering any company with a clinical stage product a dream offering," says a capital market source. "There is no pharmaceutical company, even one with five employees and NIS 500,000 in cash, in which this option does not come up in board meetings. 'If Alcobra did it; we can do it,' they say."
Indeed, investors in the sector confirm that too many unready companies are visiting them. They say that if this continues, especially if these companies insist on going public, the Israeli brand will suffer anew.
At the same time, the fate of Fate Therapeutics, raises the question just how long the window will remain open for offerings. It can only be hoped that this was a specific case of a company that aimed too high, and not the start of the closing of the window and the deflation of the hype about the sector. Life sciences experts are divided, and expect the next two IPOs in the pipeline MacroGenics Inc. and Relypsa Inc., to go ahead. It seems that anyone seeking to exploit the widest window for IPOs in 13 years had better hurry.
Published by Globes [online], Israel business news - www.globes-online.com - on October 10, 2013
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