Biotechs lean heavily on insider buying to complete quasi-IPOs

Accounting for 100% of the four IPOs so far this year, biotechs appeared to be the one sector able to generate demand from public investors. But demand is weaker than it seems. Of the nearly $400 million raised, insiders publicly indicated on 31% of proceeds, which is about 50% higher than the 2013-2015 average. However, we speculate that the remaining $275 million purportedly bought by new investors is actually much lower. Earlier crossover investors have likely had meaningful participations on these IPOs, which they did not have to disclose in registration documents. In the case of last week's Editas Medicine (EDIT), the biotech's filing showed no insider buying, but SEC filings by insiders Viking Global and Deerfield Management earlier this week suggest that existing owners bought at least 19% of the deal.



Today's two IPOs, AveXis (AVXS) and Proteostasis (PTI), both broke issue on the open while last week's BeiGene (BGNE) fell below its offer price. After today's extreme losses, which suggest that there is not enough institutional demand to outweigh selling pressure from buy-and-flip investors, biotech IPOs could have trouble finding any public buyers, even if insiders prop up the majority of the deal.

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