A Time to Test Biotechs' Strength
NEW YORK (The Deal) -- Bubbles are colorful, shimmering things. And yet they're ephemeral and can vanish in a moment, leaving behind a sticky residue. The bigger the bubble, the bigger the mess when it bursts.
That's what has some investors in biotechnology companies concerned right now. Biotechs are raking in the dough after a long period in which they were pretty much frozen out of the initial public offering market. Plus valuations are at a high, which, if they deviate too much from the underlying asset's intrinsic value, can create another kind of bubble.
Clearly, the ice that formed following the 2008 banking crisis has melted. In all of 2012, there were 12 health care IPOs, according to IPO tracker Renaissance Capital, compared with 16 in the first half of this year. An additional 15 health care firms had gone public in the early weeks of the second half.
And several of those biotech IPOs have been priced higher than expected, becoming oversubscribed, or soaring in value on the first day of trading.
"The biotechs were generally well received, with an average total return of 36%. Two biotechs, bluebird bio
Consider the example of synthetic gene sequencer Intrexon Corp.