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Biotech shares plummet as drug failure spooks investors

Biotech IPOs have gone from hot to cold.

Biotechnology stocks were among the most sought-after initial public offerings this year, with 38 through mid-November. That’s the most to go public since 2000, according to Credit Suisse.

But all five biotech offerings planned for the week of Nov. 18 were postponed. And a biotech debut on Tuesday priced at the low end of expectations.

Why the sudden freeze?

The failure of an experimental drug in September scared investors and started a sell-off of newly public biotech companies. That clobbering of new biotechs has pushed their gains below those of the Standard & Poor’s 500 index. A Credit Suisse index of new biotech stocks showed them up about 20 percent this year, compared with a gain of 27 percent for the S&P 500 index.

That’s a problem for new biotechs because one of the draws of investing in such risky companies is beating the broader market, especially since many don’t generate revenues, let alone profits.

Recently delayed biotech IPOs include Celladon Corp., which is developing therapies to treat heart disease, and Trevena Inc., which is developing treatments for heart failure.

“We’ve postponed due to market conditions, we haven’t pulled the IPO,” said Fredrik Wiklund, Celladon’s vice president for corporate development and investor relations. He declined to talk in more detail about the IPO, citing the quiet period before trading.

Trevena said in a statement that it postponed its offering because of “current market conditions.” It said it wants to “ensure full value” for its technology for its owners.

The trouble for biotech IPOs started Sept. 20, when it was announced that a potential treatment for Duchenne muscular dystrophy failed in a late-stage study. The treatment was developed by Dutch company Prosensa Holding N.V., which went public June 28 at $13 a share and closed as high as $33.28 on Aug. 1.

Prosensa plunged after the September news. Its stock is down 80 percent since then and closed Monday at $4.78.

GlaxoSmithKline, which is working with Prosensa, said it would examine the study’s results more before deciding its next move.

Prosensa’s woes spooked biotech investors by reminding them that disaster can strike, said Francis Gaskins, who runs IPOdesktop, which advises investors on offerings. And because it can take a long time for drugs and treatments to move from the lab to the marketplace, biotech IPOs are “going to be in the doghouse a while longer.”

On Tuesday, an IPO for biotech Xencor priced at the low end of expectations. The company, which develops treatments for severe autoimmune and allergic diseases and cancer, said it raised nearly $70 million by selling 12.7 million shares for $5.50 each.

In November, the company said it planned to sell 5 million shares for $14 to $16 each, which would have raised $80 million at the high end. Still, the stock rose $1.48 cents, or 27percent, to $6.98 by early afternoon Tuesday.

Other IPOs have done very well. Aratana Therapeutics Inc., which develops pet medications based on therapies for humans, has more than tripled from its IPO price of $6 a share, closing Monday at $19.31.