The shares of Axovant Sciences decline in its second day of trading after setting the highest initial public offering (IPO) record in the biotechnology industry in 20 years.

Axovant Sciences

The clinical-stage biopharmaceutical company offered its stock at $15 per share, the high end of its estimated price range. The stock price of Axovant Sciences surged by over 100% to as much as $31.17 per share and eventually closed to $29.90 per share during its IPO on Thursday, July 11.

Axovant Sciences reached a market valuation of more than 2.7 billion yesterday, which is extraordinary for a company with no revenue. Today, the company’s stock is trading $25 per share, down by more than 16% around 12:29 in the afternoon in New York.

According to Rennaissance Capital, a research firm and IPO ETF manager, three other biotech companies achieved more than $1 billion valuations during their IPOs this year—Aduro Biotech, Adaptimmune Therapeutics, Fibrogen. Last year, only two biotech companies reached that level.

Axovant Sciences breakthrough drug for Alzheimer’s disease

Investors are betting on the breakthrough treatment for Alzheimer’s disease known as RVT-101, which was acquired by Axovant Sciences from GlaxoSmithKline for $5 million last year.

Axovant Sciences CEO Vivek Ramaswamy said the company’s RVT-101 was a “potential best in class drug candidate” that could address “one of the biggest un-meet needs.” Ramaswamy is confident on the potential of RVT-101 to treat people suffering from Alzheimer’s disease and dementia.

Ramaswamy said, “It’s a major unmet need, a complex disease we don’t yet fully understand. Our company is dedicated to addressing this major unmet need, and we have a great team to tackle this problem. We think it’s a great drug candidate — one pill one time a day.”

Axovant Sciences plans to start the confirmatory Phase 3 clinical study for RVT-101 in patients with mild to moderate Alzheimer’s disease in the fourth quarter. The company plans to apply for regulatory approval and commercialize RVT-101 if the results of the study will be successful.
“In the near term, we’ll rapidly advance RVT-101 for the treatment of Alzheimer’s and other forms of dementia. Over time, our strategy includes acquisition or in-licensing for other candidates for all types of dementia,” said Ramaswamy.

Are biotech stocks becoming over-valued?

Some people express doubts regarding the success of the RVT-101 since the U.S. Food and Drug Administration (FDA) has not approved a new drug for Alzheimer’s disease in ten years. They think that the astonishing increase in the stock price of Axovant Sciences, which has only one drug in its pipeline, is a sign that the market particularly the biotech companies are overvalued.

On Thursday, John Carrol, editor in chief of Fierce Biotech commented, “Given the fact that GlaxoSmithKline had a chance to take a look at this drug in the clinic, and concluded that they couldn’t do better than selling it for lunch money, the IPO terms illustrate the kind of overnight riches a select few can find on Wall Street.”

Bloomberg noted that the NASDAQ Biotech Index is trading at a high-level. The index gained 21% this year, which prompted a series a biotech IPOs. The index is trading at 9.8 times annual sales compared with the S&P 500 at 1.9 times.

Les Funtleyder, an investor who made investments in the IPO of Axovant Sciences told Bloomberg, “Valuation in biotech is like an opinion on a Jackson Pollock painting: Whatever assumptions you bring are what your outcome is.”