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Vials of H5N1 flu vaccine by Beijing-based drug maker Sinovac Biotech Ltd. are seen during production at Sinovac facilities in Beijing, Nov. 24, 2011.Andy Wong/The Associated Press

Drugmakers are raising money at levels not seen in at least a decade, with many of the same biotechnology firms that led last year's surge in initial public offerings now doing follow-on stock sales to capitalize on the industry's boom while they can.

In the first quarter, biotech and pharmaceutical companies used 93 share sales to reap $18.7-billion, three times more than in 2014 and the biggest total in at least 10 years, according to data compiled by Bloomberg. Such follow-on sales let already public companies fund new investments or let insiders cash out.

A slump this week in biotech shares underscores why companies have been seizing the chance to raise money, seeking to sell shares while the market is still hot. The Nasdaq Biotech Index has sunk 5.2 per cent since Friday, though it's still up 51 per cent in the past year.

Follow-on offerings in the drug industry have become more popular than initial public offerings, which fell to 10 in the first quarter from 30 in 2014, with a total deal value of $789-million -- less than half that raised one year before. With some investors concerned that the market is getting overheated, an already established public company may provide a less risky bet than a brand-new one.

"Follow-ons have taken the space where the IPOs are, and that's healthy," said David Schechner, a managing director in life sciences investment banking with Baird Global Investment Banking. "How many IPOs can you do? You only want quality companies, and hopefully investors are being discerning."

Many of those follow-on offerings are from companies that went public in the last two or three years, and are now back for more capital as their drug pipelines progress. Some companies may simply be grabbing cash while they can, so investors should be careful about picking shares, said Myles Clouston, senior director of Nasdaq Advisory Services.

"Everyone's a little bit nervous today about a big sell- out, but you have to have a piece of biotech," Mr. Clouston said by telephone. "Homework has to be done."

Even with the drop this week in biotech stocks, the Nasdaq Biotech Index still trades at a ratio of 9.5 times annual sales, compared with 1.8 for the Standard & Poor's 500 Index. IPOs may also make a comeback; 10 biotech or pharmaceutical companies are currently making their pitches on Wall Street for stock-market debuts in the next two weeks.

Earlier IPOs

The ample availability of funding in recent years persuaded companies to go public at earlier stages in their development -- in many cases, before they even have a medication in clinical trials. In 2014, 10 companies went public with drugs still in early-stage testing or not yet in trials, compared with four in 2013, according to data compiled by Baird.

Now those companies are finding they can readily go out to the market for additional cash.

"The old adage 'When the ducks are quacking, you feed them,' applies here," said Andrew McDonald, chief executive officer of LifeSci Partners, which runs two biotech exchange- traded funds.

Mr. McDonald also runs an investor relations firm, LifeSci Advisors, and counsels companies "to take advantage of the market conditions and to raise as much as you can," he said.

The health-care companies have been able to raise the money without offering unusual discounts. Drugmakers and biotechs offered an average discount of 5.8 per cent in follow-on offerings in the first quarter, compared with an average of 6.2 per cent for all other companies, according to data compiled by Bloomberg.

Double Dipping

While the follow-on offerings in the first quarter were led by pharmaceutical giant Actavis Plc raising $4.2-billion for its acquisition of Allergan Inc., the top 25 offerings by size were dominated by midsized biotechs, including Alnylam Pharmaceuticals Inc., Intercept Pharmaceuticals Inc. and Auspex Pharmaceuticals Inc.

Some companies have even gone to the well twice in the same quarter.

The case of Intercept, which has seen promising results in a drug for a fatty liver disease but doesn't yet have an approved product on the market, shows how companies have seized the opportunity to add to their cash coffers. The company raised $202-million in a follow-on offering priced on Feb. 3, days after the U.S. Food and Drug Administration granted its drug a breakthrough designation, which can help speed the approval process.

"When we went out with the first offering, our stock had started to recover -- there was positive momentum having received the breakthrough designation," said Mark Pruzanski, Intercept's CEO, in an interview.

Overhang Removed

Then, competitor Genfit reported disappointing trial results for its drug. Intercept went back out to the market, raising a further $375-million on March 31.

"We got a lot of strength and momentum in the stock after that and saw another opportunity to complete the capitalization," Mr. Pruzanski said. "To do that, our shareholders obviously agreed that it was appropriate and there was strong demand for those offerings."

Ultragenyx Pharmaceutical Inc., which focuses on rare genetic diseases, has sold shares twice since going public in January 2014, raising $418-million in a little over a year. The company attracted a mix of generalist and specialist investors in its most recent offering on Feb. 4, which was oversubscribed, Chief Financial Officer Shalini Sharp said in an e-mail.

"Financing windows certainly come and go," Sharp said. "Recent market conditions have been generally favorable in biotech, and at the time we felt that our broad and advancing pipeline would be well received by investors."

Neither Intercept nor Ultragenyx are generating much revenue yet, since their drugs are still in development. Investors typically value such companies based on the market potential of the drugs and their likelihood of having successful outcomes in trials and of getting regulatory approval.

Markets are cyclical, and biotechs won't always find it this easy to raise capital, said Bryan Roberts, partner at venture capital firm Venrock. He warned shareholders to invest only in companies where the management won't squander the capital too quickly.

"People have a tendency to spend more money when they have more money," he said. "Financial discipline in the face of plenty is very important and at times difficult."

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