IPO party over, but biotech stocks strong
Investors and executives in biotechnology companies at a panel on biotech capital saw a strong funding market for a more mature industry, though some cautioned about potential financial failures among the growing numbers of unaccredited investors in complex biotech companies.
The panelists spoke at a recent breakfast meeting in Tarrytown of ACG New York Inc., the metropolitan chapter of the Association for Corporate Growth.
Scott Livingston, a nanotechnology investor and chairman and CEO of Livingston Securities L.L.C. in Manhattan, said the biotech funding market “is as good as it”™s been in a long, long time.” That is due to lab technology advances at companies and a strong equity capital market, he said, and in large part to the federal JOBS Act of 2012, which eases regulatory restrictions on smaller stock offerings and allows crowdfunding for small investors and emerging growth companies and small businesses.
“That has the potential to permanently change the biotech funding environment for earlier-stage companies,” Livingston said.
Livingston later wryly noted that the crowdfunding phenomenon also will give rise to business fraud and lost securities investments.
“If I were a parent sending a kid to law school, I would tell them to specialize in class action law and sue all those crowdfunding websites,” he said. “This group of crowdfunding (sites) is going to go out under a mass of lawsuits.”
John J. Pacifico, president and CEO of Orthocon Inc. in Irvington, warned that crowdfunding and the JOBS Act could bring unaccredited stock investors to biotech companies. “People who don”™t really understand the complexity of investing in biotech are starting to invest in biotech,” he said. “That could create a potential disaster” and lead to a cycle of financial failures, investors leaving the market and new legislation and protections that bring in new small investors.
He and other panelists cited the maturing of the biotech industry in the U.S.
“A lot of fat in the system has been taken out,” Pacifico said. Companies that have gone public “have now actively delivered on their promises,” he said.
The market is investing in biopharma and medical companies with “highly defensible” intellectual properties, Pacifico said. Investment in those companies will continue “primarily because of the defensible posture that they have.”
Arthur Klausner, CEO of Utah-based Jade Therapeutics and Gem Pharmaceuticals L.L.C. of Alabama, said public stock offerings in biotech today “are for companies who are very close to having revenues or have revenues. The time for companies to go in with great IPOs is gone.”
“I don”™t see a crash of the biotech stocks, but I think when the market corrects, you could see the bio stocks overcorrect,” Klausner said.
Livingston noted that Regeneron Pharmaceuticals Inc. in Greenburgh, the state”™s largest biotech company, survived several market crashes “and they”™re worth $10 billion now. So keep investing.”
Livingston said major investment firms such as Goldman Sachs and Morgan Stanley “are not part of the answer” for biotech companies going public for financing. “We need to change the way IPOs are done,” he said. “We need to have local companies become local champions of the economy” and invest in these early-stage companies.
One such biotech company in Yonkers, Contrafect Corp., this month announced it has a new international equity investor. Chinese billionaire Shengda Zan and his Zongyi Group”™s $8.6 million investment will help finance initial clinical trials of Contrafect”™s drug treatment for potentially fatal bacterial bloodstream infections.
Laurence Gottlieb, CEO of Hudson Valley Economic Development Corp., told the ACG crowd of efforts by public and private officials, including Scenic Hudson board member Steven C. Rockefeller Jr., who heads his family”™s capital investment company, to connect the Chinese with companies in the region seeking an equity infusion. “It wasn”™t easy to find people who were willing to meet with these folks,” Gottlieb said.
Dr. Robert Nowinski, founder and CEO of Contrafect, twice visited China to meet with his company”™s potential partners. Gottlieb said the Zongyi Group”™s investment in Yonkers “is the largest investment out of China to a private biotech” company in the U.S.