Adaptive Biotechnologies’ first day as a public company is one for the record books.
Shares in the Seattle-based biotech, which specializes in genetically targeted medicine, closed Thursday at $40.30. That represents a 101.5 percent increase from the initial public offering price of $20 — the second-largest opening-day jump for an IPO this year, according to Nasdaq.
It also represents substantial reward for Adaptive Biotechnologies’ longtime investors as well as its co-founders, brothers Harlan and Chad Robins, who launched the company 10 years ago with technology that Harlan developed at Fred Hutchinson Cancer Research Center.
Thursday’s impressive price “pop” reflects investors’ enthusiasm for that core technology, which maps the genetics of the immune system, but also for the company’s disciplined business model.
Unlike many biotech startups, Adaptive is already generating tens of millions of dollars in revenue from the sale of its gene-sequencing technology to researchers, biopharmaceutical firms and hospitals.
The company, headquartered on Eastlake Avenue, just a few blocks from The Hutch, has further impressed Wall Street by partnering with San Francisco-based biotech giant Genentech and cloud-computing powerhouse Microsoft.
Thursday’s IPO raised $300 million before expenses, which qualifies Adaptive for another distinction: its IPO is the second largest for a biotech firm in 2019, after BridgeBio Pharma, which raised nearly $350 million in its own Thursday IPO.
It’s also the first IPO for a Seattle-area company since mid-2018, and the largest in Washington state since Symetra Financial raised $365 million in 2010, according to data from Renaissance Capital, which manages IPO-focused investment funds.
Adaptive’s market capitalization — more than $2.5 billion at the IPO price — is also the highest for a local company going public since a 2013 IPO valued e-commerce firm zulily at $2.9 billion.
By Thursday’s close, Adaptive’s market valuation had grown to nearly $5.4 billion, topping both Nordstrom and tax-automation provider Avalara.
That translates into substantial rewards for investors who backed the company in its early stages. Greenwich, Connecticut-based Viking Global Entities, the largest shareholder with a 36% stake, saw its holdings grow in value to around $1.5 billion. The 16.4% stake held by Waltham, Massachusetts-based Matrix Capital Management grew to nearly $690 million.
The IPO was also generous to Harlan and Chad Robins, the company’s chief scientific officer and CEO, respectively. Harlan, 46, the former director of computational biology at The Hutch, and Chad, 45, formerly in real-estate finance, both have 6.3 percent stakes, each now worth $268 million. Julie Rubinstein, company president, saw her 1.3% stake increase in value to $54.8 million.
The brothers and other pre-IPO company shareholders are barred from selling their shares for at least 180 days, according to the company’s prospectus.
The IPO substantially bolsters the company’s cash reserves as its continues to try to turn complex technologies into commercial products. That’s critical, because despite the startup’s revenue-generating operations, its efforts to create “personalized” therapies that are tailored for the genetics of patients with complex diseases, from autoimmune disorders to cancer, are burning through cash at a prodigious rate.
Despite $55.6 million in revenues in 2018, the company reported a $46.3 million loss, and as of March 31, 2019, had an accumulated deficit of $314.5 million.
With Thursday’s offering, Adaptive now boasts more than $700 million in cash and cash equivalents, making it “very well capitalized,” said Matthew Kennedy, a senior IPO market strategist for Renaissance Capital.
Still, the company faces substantial hurdles. Even as Adaptive pushes further into the promising, but highly challenging realm of personalized medicine, it must also find ways to generate more revenue from existing lines of business.
For example, experts say Adaptive is working to persuade insurance companies to reimburse at higher rates for the company’s sophisticated gene-sequenced diagnostic tests, which can help doctors determine more precisely how much cancer remains in a patient after treatment.
“If Adaptive really wants to be a big and successful diagnostics company, they’re going to need to convince the health-insurance companies to pay them a decent amount for that information,” said Luke Timmerman, founder of the Seattle-based biotech newsletter Timmerman Report.
More fundamentally, Adaptive must now demonstrate that the success it has achieved can be substantially ramped up.
The company, which has grown to nearly 350 employees and has a new research and development facility in San Francisco, will now be under intense scrutiny from investors looking for revenue growth and steady progress to profitability.
“They wouldn’t have gotten this far if the science wasn’t sound,” said Will Canestaro, managing director at the Seattle-based Washington Research Foundation. “Now that they are public, it will be necessary to show that this is a sustainable and scalable business.”
Information about the stake held by Chad and Harlan Robins has been corrected.