Valley firms go public as biotech field remains hot

Two Redwood City biotechnology companies went public this week — signaling what analysts predict will be a continued surge in investor interest and initial public offerings in the sector in 2018.

Stock prices for Menlo Therapeutics and Armo Biosciences were up 68 percent and 75 percent, respectively, as of Friday. Menlo is developing a drug, serlopitant, to treat itch associated with skin conditions including atopic dermatitis and psoriasis. Armo makes immuno-oncology drugs for pancreatic, lung and renal cell cancer.

A recent flurry of biotech deals — most notably Celgene’s $9 billion acquisition of Juno Therapeutics, which makes a potentially game-changing immunotherapy treatment known as CAR T — and the success of other recent biotech initial public offerings is giving investors confidence, analysts said.

“I’m expecting a lot more IPOs in the near future,” said David Nierengarten, a biotech analyst at Wedbush Securities. “The simple reason is the biotech market has done quite well. When the markets do well, it’s time for biotechnology compa-

“I’m expecting a lot more IPOs in the near future. The simple reason is the biotech market has done quite well. David Nierengarten, biotech analyst, Wedbush Securities

nies to go public. When you’re looking at investors experiencing 50-plus percent moves on day one, they feel good about buying the next biotech IPO and it feeds on itself.”

Biotech was one of the topperforming sectors of the IPO market in 2017, according to Renaissance Capital, which tracks an index of recent IPOs. There were 36 biotech IPOs in 2017, up from 29 in 2016, and the average return was 67 percent.

“That is putting a huge fire under these companies and the interest in the segment,” said Kathleen Smith, principal at Renaissance Capital who manages IPO-focused exchange-traded funds. “Because of that average return, investors are just rolling the dice and saying, ‘If this is how it is, I’ll take my chances.’ ”

San Francisco’s Denali Therapeutics, the last major biotech IPO of 2017, was trading at $22.20 per share Friday — up 23 percent from its initial public offering price of $18. The company develops treatments for neurodegenerative diseases like Alzheimer’s and Parkinson’s.

“Because of that average return, investors are just rolling the dice. ” Kathleen Smith, principal, Renaissance Capital