In March we asked “Are We In A Biotech Bubble? [3].” At the time, we pointed out a number of rather alarming statistics including the fact that there were 82 biotech IPOs in 2014, eclipsing 2000’s record of 67.
[4]
We also noted that the number of biotechs with valuations that exceed $2 billion has quadrupled over the last four years alone.
On Thursday, we got what might fairly be characterized as definitive evidence that investors have now abandoned any pretense of sanity when it comes to chasing the next blockbuster miracle drug.
Enter Axovant Sciences. The company, which began trading today, is a spinoff Roivant Sciences, a shell created by 29-year old Vivek Ramaswamy after he left QVT last May. In December, Axovant bought an Alzheimer’s drug (RVT-101) that GlaxoSmithKline shelved years ago after 13 clinical trials for — get this — $5 million. So, just to be clear, Glaxo basically gave this thing away.
(Ramaswamy)
What’s a $5 million throwaway drug worth in Janet Yellen’s “substantially stretched” biotech market? Billions, apparently. Axovant priced [5] its (upsized, of course) offering last night at $15/share which valued the company at $1.3 billion give or take. Today, the shares have doubled.
But wait, there's more.
According to its S-1, the company has a grand total of seven employees, two of which, FT says [6], are Ramaswamy's mom and brother, who make $250,000 each and own 2 million options between them — the exercise price is $0.90, meaning the two got $58 million richer today on paper.
Better still, note the following passage from the S-1 [7]:
We are an "emerging growth company" as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, enacted in April 2012, and therefore we intend to take advantage of certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in this prospectus, our periodic reports and our proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved. We may take advantage of these exemptions for up to five years or until we are no longer an "emerging growth company."
And here’s a look at the balance sheet:
[8]
But don't worry about the whole zero cash thing, because thanks to Thursday's blockbuster offering, Axovant will now have several hundred million to burn, and burn it they shall in what in all likelihood will be a futile attempt to get RVT-101 to market because after all, as one analyst told FT, phase 3 is a "graveyard for Alzheimer's drugs."
* * *
As an aside, Ramaswamy's mom and brother aren't the only ones getting rich today. Visium Asset Management and RA Capital Management — who may have helped to create a buzz around the stock by "indicating an interest" in the shares earlier this month — apparently took down around 60% of the offering. From the company's amended S-1 [9]:
Visium Asset Management, LP and RA Capital Management indicated an interest in purchasing up to an aggregate of approximately $150.0 million of our common shares in this offering at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters may determine to sell more, fewer or no shares in this offering to any of these entities, or any of these entities may determine to purchase more, fewer or no shares in this offering. Any shares purchased by these entities in this offering will be subject to a 90-day lock-up agreement with the underwriters.
That seems like a pretty good deal, especially considering that 90 days is at the low-end of the range in terms of lockup periods.
