A Go-Go Market for Rare Disease IPOs

One thing that may have helped drive venture financings was the liquidity the IPO market provided investors as 2020 proved to be a record setting year for rare disease initial public offerings. Rare disease therapeutics developers raised $4.5 billion in 2020 in 25 offerings. That eclipsed the $1.5 billion that 11 rare disease companies raised through IPOs in 2019. The IPO class of 2020 raised an average of $180 million per offering, up from $137.9 million a year ago and greater than the $171.1 million raised on average by biotech IPOs overall.

The market quickly rewarded investors for their confidence in these companies as these issues enjoyed an average 35.8 percent first day return, roughly the same as the 35.1 percent for biotech IPOs overall. Rare disease IPOs ended the year up 81.7 percent from their offering price but were bested by the 93.5 percent change in price for biotech IPO shares overall at year-end. One other sign of the enthusiasm for these issues was that in 2020, they involved no insider buy-ins. That compared to buy-ins of 36.4 percent in 2019 and 71.4 percent in 2018.

Forma Therapeutics, a clinical-stage biopharmaceutical focused on the development of therapies for rare hematologic diseases and cancer completed the largest rare disease IPO of the year at $319.3 million. The company’s lead experimental therapy is olustasidenib, a selective inhibitor of mutations in the enzyme isocitrate dehyodrogenase 1 in development for acute myeloid leukemia. It is also being studied in certain forms of brain cancer and may have use in other solid tumors. The company is also developing an experimental therapy for the rare hematological condition sickle cell disease.

At the time Forma went public, the company’s lead program was in phase 1 clinical development, a sign that public investors were not afraid to buy shares in early-stage companies. Perhaps more telling is that six of the ten largest rare disease IPOs involved companies that had a lead program that had not yet reach human clinical trials. Overall, 24 of the 25 rare disease IPOs were for companies with a lead program that was phase 2 or earlier. Eight of the companies had lead programs that were preclinical. Only one company, Harmony Biosciences, had a marketed product. Harmony developed pitolisant for narcolepsy and is working to broaden its indications to include Prader-Willi syndrome.

Gene therapy companies dominated the IPO haul with Beam Therapeutics, Passage Bio, Generation Bio, Akouos, Freeline Therapeutics, Taysha Gene Therapies, and 4D Molecular Therapeutics raising a combined $1.5 billion. Together, they accounted for nearly a third of the overall rare disease IPO investment in 2020. The most advanced programs for each of these companies were either in preclinical or phase 1 development.