The state of healthcare IPO market: Do still waters run deep?
By Eric Laub
There are questions looming about the condition of the market for companies seeking to go public since investment banking and financial services company, Cowen, released a report this week highlighting decreased investor interest in IPOs. The report found ~70% of investors surveyed had ‘decreased’ or greatly decreased’ interest in buying into IPOs as compared to last spring.
So, what should – or shouldn’t -- we read into this for the life science IPO market conditions? Here’s our take:
In the first half of 2019, it appeared that we may be on track for a record year for biotech IPOs. Then, the market went cold in mid-July -- spooking some. But worriers should remember that the IPO market has “fits and starts,” and one contributing factor is seasonality. Typically, July and August are not ideal times of year to hold the attention of institutional investors. As a result, bankers will normally steer company managements away from listing during summer months in the hopes of a higher valuation in the fall.
Healthcare has historically been an attractive investment area. And more than half of the IPOs priced this year were from the healthcare industry (58 of 101).* But, the industry is facing several headwinds, most notably, the highly charged political environment and drug pricing debates. An election cycle will add kindling to the fire– and can make quantifying the risks of investing in biotech IPO’s more daunting.
Investors have options
Overall, IPOs remain a good option relative to other forms of investment. The average year-to-date return from the issue price has been 30.88% vs the NASDAQ year to date return of 21.15%* But, IPOs can also be a gamble. Of the 101 IPOs this year, 61 are trading higher and 40 trading lower than their issue price.*
In a marketplace with many options, can you blame investors for looking beyond IPOs? There are lots of established companies with solid track records, which are looking more attractive over the past quarter to help ensure yearly returns.
IPO’s have a “window” with investors. Sometimes the window is open for a long time, however, when investors shut the window, it’s unequivocal. In healthcare, we are not there, at least not yet. Reduced interest does not mean there is no interest. Investors will heighten their scrutiny but companies with strong fundamentals, great science and solid leadership still have investor interest. There’s currently four life science IPO’s expected to price this month (see below).* We’ll be watching!
- IGM Biosciences $152MM,
- Springworks Therapeutics $152MM,
- Satsuma Pharmaceuticals $92MM,
- 10X Genomics $362MM
*According to IPOScoop.com
Who wrote this? The managing editor of TWTW is Randi Kahn, who is hoping the Mets give her a win on her birthday this weekend. Thor is pitching so it has to be a good game, right?
Syneos Health Communications' Reputation & Risk Management Practice is a team of healthcare communications consultants, policy-shapers and crisis response specialists. We provide unique solutions to the evolving communications challenges in today’s healthcare industry, using evidence-based approaches to help our clients successfully navigate the most sensitive of situations.
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