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12:00 AM
 | 
Nov 23, 2015
 |  BioCentury  |  Finance

Losing momentum

Why momentum-driven follow-ons have disappeared in 4Q15

The days of the momentum-based follow-on offering are gone, as a flattening of the biotech indices and dismal after-market performance have eroded investor appetite. The result is a sharp drop-off in 4Q15 follow-ons, and a market that is receptive only to companies that have delivered on key milestones.

In other words, things are back to normal.

"Opportunistic financings are largely off the table," said Stuart Duty of Guggenheim Partners.

"If you're looking to be an opportunistic issuer where there's not necessarily an acute need for capital, that financing is a bit on hold," agreed Rahul Chaudhary of Leerink Partners. "If you're looking at good data or a need-to-have situation, those companies are raising money. They're just doing it with a narrower group of investors - the marginal buyer feels like they're pretty much out of the market right now."

In contrast, bankers are advising private companies to do IPOs before year end if they can, as they expect increased competition for investor attention and capital after JPMorgan.

Record shop

The follow-on total now sits at $25.2 billion. That's more than double the $11.4 billion raised in the bubble year of 2000 and dwarfs the $11.1 billion biotechs raised in follow-ons last year.

In terms of sheer numbers, 215 follow-ons have priced this year, well above the 78 offerings in 2000 and 150 deals last year.

A disproportionate share of the action occurred in the first nine months. During that stretch 200 deals raised $24.6 million (see "Back to Normal?" page 14).

Much of the money was chasing performance. From the start of the year to biotech's peak in the middle of July, the BioCentury 100 index was up 33%, far outpacing the single-digit percent gains by the broader markets. Even after a choppy August, the BioCentury 100 was up 12% for the year, well ahead of the 1% gain on NASDAQ and the 7% slide on the Dow Jones industrial average.

"When people were chasing investments, companies took advantage of it. Everyone was playing the momentum and you had seasoned companies financing off a rising stock price," said Ladenburg Thalmann's Edwin Gordon.

"The volume of financings on the follow-on side was driven by high stock...

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