Health IPOs Take Off in Europe as U.S. Market ‘Drenched’

Health companies are lining up to sell shares in initial public offerings in Europe, encouraged by a wave of U.S. listings and the U.K.’s biggest biotechnology sale in at least 25 years.

Circassia Pharmaceuticals Plc, an allergy-vaccine developer, raised 200 million pounds ($330 million) last week on the London Stock Exchange, surpassing a 115-million pound IPO by Oxford Glycosciences Plc in 2000. Genticel SA, a French maker of therapeutic vaccines, said this week it plans to raise as much as 39.7 million euros ($54.7 million), while Horizon Discovery Group Plc, a maker of gene-editing tools, announced a 25 million-pound sale.

The offerings may attract interest from investors who are concerned that U.S. health-care shares are overvalued after surging biotech stocks prompted a flood of share sales. In the U.S., 79 life-science companies raised $6.7 billion through IPOs in the past year, while Europe saw only 14 that raised $673 million, according to data compiled by Bloomberg.

“The U.S. equity markets have been drenched with IPOs,” said Gabriele Cerrone, a founder of two U.K. companies, Gensignia Inc. and Tiziana Pharmaceuticals Ltd., that plan offerings. “The valuations are dramatically lower for European biotechs, so if you’re concerned about a potential U.S. bubble, the natural place to look is here.”

The Nasdaq Biotechnology Index surged 66 percent last year and the MSCI Europe Biotechnology Index gained 53 percent, topping a 30 percent increase for the Standard & Poor’s 500.

Risk Appetite

As a result, appetite for the risk that comes with biotech investments is growing, not just among health-care funds, but also among generalist investors, said Julian Feneley, head of European health-care investment banking at Canaccord Genuity, which co-managed Circassia’s offering.

Successful clinical trials, regulatory approvals and deals such as Sanofi’s $700 million investment in Alnylam Pharmaceuticals Inc. in January are driving interest, he said.

Some of the health deals this year in Europe have rewarded investors.

4D Pharma Plc, which is developing treatments for auto-immune diseases, has jumped 85 percent since it started trading in London Feb. 18 after a 16.6 million-pound sale. Crossject SA, a French developer of needle-free injection systems, has jumped 23 percent since its 17 million-euro sale.

Circassia’s IPO was priced at the high end of the range that the company was seeking, though the shares have dropped 0.5 percent since trading began March 13.

‘More Conservative’

Gensignia, which is developing a lung-cancer diagnostic, probably will list in London by the end of the third quarter. Tiziana, which is working on a therapy that suppresses breast-cancer growth, is planning a reverse merger with another U.K. company and will offer shares by the end of April, said Cerrone, a former director of Inhibitex Inc., acquired by Bristol-Myers Squibb Co. for $2.5 billion in 2012.

“European markets tend to be more conservative, but investors are realizing there are big opportunities,” said Thomas Saylor, chairman of the small and medium enterprises platform at EuropaBio, a biotech trade group in Brussels.

Among other companies with IPOs in the works: Genomic Vision, a French maker of molecular diagnostics, SuperSonic Imagine SA, a French developer of ultrasound imaging gear, and Cambian Group Plc, a U.K. provider of mental-health services.

Investors in the U.K. want to see companies that have been well-funded by venture capitalists, with products nearing the market, first-class management and rigorous clinical trials, said James Steel, a partner in London at Peel Hunt LLP, which helped arrange the Circassia offering.

‘Difficult Sector’

Biotech stocks have been a tough sell in the U.K. after investors lost money more than a decade ago on companies including British Biotech Plc.

“It’s been a particularly difficult sector in the U.K., so the quality threshold is extremely high for IPOs,” Steel said.

Some investors are learning anew how risky biotech can be. Shares of Prosensa Holding NV, a Dutch developer of a treatment for Duchenne muscular dystrophy, have plunged 48 percent since its Nasdaq IPO in June, on disappointing results from a clinical trial and the termination of a partnership with GlaxoSmithKline Plc on the drug, known as drisapersen.

Besides the risk of individual companies, investors will be watching the broader stock market. Some IPOs may be canceled or postponed if the market rally of the past year cools off.

“In biotech, you’ll inevitably get the occasional hiccup,” Canaccord’s Feneley said. Still, more positive news flow is expected this year, and “we see the level of interest as being sustainable for the medium term,” he said.