Big Pharma backs biotech IPOs with strategic investments
Facing billions of lost revenues from generic competitors, Eli Lilly and Merck anchored IPOs from Veradermics and Eikon Therapeutics as preludes to possible takeouts of the late-stage biotechs down the road.
“A strategic investment is not always about product access,” a veteran healthcare banker told IFR. “It can also be about getting a preferred seat at the negotiating table during M&A talks.”
Veradermics delivered a strong outcome after securing an upsized US$256.3m late on Tuesday from its Lilly-backed Nasdaq IPO.
With its shares in short supply, the late-stage hair loss drug developer's stock more than doubled on its debut to a closing price of US$37.75 on Wednesday, up 122.1% on day one.
Jefferies, Leerink Partners, Citigroup and Cantor were joint bookrunners on the pricing of 15.1m shares at US$17, one dollar above the top of the US$14–$16 marketing range and an increase from the 13.5m shares originally planned.
Lilly is under pressure to build new revenue streams before its US$5bn-selling diabetes drug, Trulicity, goes generic next year.
Despite having no previous relationship with Veradermics, Lilly disclosed its intention to take a 4.9% stake as a new investor in a securities filing on Tuesday morning. That anchor order came on top of a US$30m anchor order from Wellington Capital Management.
Veradermics is using the money to fund a Phase III trial for an oral, extended-release formulation of minoxidil to treat hair loss, with initial results expected in the second half of this year.
Topical minoxidil, the active ingredient in Rogaine, is widely sold in generic form and generates US$1.6bn in annual global sales. Although an oral version of the drug is approved to treat hypertension, it is too potent for the safe treatment of hair loss.
Merck is under similar pressure as Lilly to generate new revenue streams as patents on its US$23bn-seller Keytruda, the best-selling cancer drug of all time, are due to expire in 2028.
Merck anchored Eikon Therapeutics' upsized US$381m Nasdaq IPO on Wednesday with a 10% anchor (up to US$30m) order that solidified existing ties to the late-stage cancer drug developer.
Eikon’s CEO Roger Perlmutter and Roy Baynes, the chief medical officer, are former Merck execs who helped oversee Keytruda’s development and commercial launch.
Using Nobel prize-winning research techniques developed by co-founder Eric Betzig, Eikon is using the IPO proceeds to fund two Phase II/III trials on its lead drug in combination with Keytruda, one in skin cancer and another in lung cancer.
Responding to robust demand, JP Morgan, Morgan Stanley, Bank of America, Cantor and Mizuho Securities late on Wednesday priced 21.2m shares at US$18, the top of the US$16–$18 marketing range and a 20% upsize from the original 17.6m shares.
Expectations were high after Veradermics' strong debut, but investor sentiment changed quickly. Eikon broke hard at the US$17.05 opening print and retreated in Thursday's debut session to a closing price of US$15, down 16.7% on day one.
At least Eikon has its money. When combined with existing cash, its US$725m is enough to keep it going into the middle of 2029.