Investment Watch: IPOs

Biotech IPOs are commanding a larger market share than the year before — and this trend shows no signs of slowing down.

This year has been marked by a growing economy. One standout sector benefitting from a bullish trading environment has been biotech IPOs, which are currently experiencing what can only be referred to as a boom. Biotech IPOs are being saturated with capital as soon as they enter the market, and just how much is quite staggering. In one week, eight biotech companies were able to command $645 million, adding to a $3.3 billion total market value.1

A Biotech IPO Boom

Given the upward trend of previous IPOs, there should be no surprise that other biotech companies directly followed suit, deciding that now is the time to enter the market, or at least inform the market. Directly following the buzzed about pharma-friendly week of trading, five additional biotechs declared their plans to go public, with a subsequent four joining the ranks — going from announced to full-blown IPOs.1

It seems that if there was any hesitation before, these patterns are enough to totally dispel it, putting even the most worrisome board at ease. Companies are cashing in on a pharma-friendly trading floor, where a combination of factors has contributed to the stellar performance of these biotech IPOs, again, starting with a decidedly bullish market in general. By the midpoint of this year, there had been more biotech IPOs than in all of 2017; if this pace keeps up, 2018 may witness the most IPOs in a single year. This biotech boom is all the more striking given the relative reticence exhibited toward public offerings in the technology segment this year.

Regardless of whether a biotech company has demonstrated results, or if a drug has what it takes to make the nearly impossible journey from clinical to commercial and even beyond to break through — a biotech IPO is perceived to have intrinsic value.

A Convergence of Drivers

Aside from that, the recent tax relief package has given companies the initiative needed to undergo more mergers and acquisitions and licensing deals, which has made the sector even more lucrative and ripe to receive Wall Street dollars. This is evident even when examining trends present earlier in the year, when public biotechs were rewarded after pricing their shares at their desired opening rate. Performance continued at a steady rate following the opening, which thus attracted even further investment. While part of this year’s boom is attributable to the accelerating pace of innovation, particularly data-driven innovation, the bullish conditions are further encouraging companies that may have remained private under other circumstances to take the plunge.

This overall upward swing (or at least steadiness) has led to what is known as “crossover investment,”1 with hedge funds and related institutions betting on biotech; Fidelity and Deerfield Management are exemplary companies that have comfortably “crossed over” via their sponsorships in the health sector.1

Of course, how long this will last or if the investments are worth it has yet to be determined; the principal takeaway is that — regardless of whether a biotech company has demonstrated results, or if a drug has what it takes to make the nearly impossible journey from clinical to commercial and even beyond to break through — a biotech IPO is perceived to have intrinsic value. The market has yet to differentiate one company from the next; what’s good enough for Wall Street is that biotechs are booming right now, and that seems to be all that matters on the trading floor.

References

  1. Weintraub, Arlene. “As Biotech IPOs Boom Again, Here Are 5 to Watch.” Forbes. 28 Jun. 2018. Web.