2020 IPO Class Performance
By Greg Benning, Managing Director and Head of Investment Banking, Back Bay Life Science Advisors
There is no doubt that 2020 has been a difficult year to forecast and a roller-coaster ride for both drug developers and the capital markets. One interesting silver lining for biotech has been the institutional and retail investor money flow directed to the life sciences, with the broader capital markets seeking portfolio returns to replace low interest-rate and cyclical large-cap investments.
This has been very enabling for new IPO issuers in terms of both capital raised as well as their stock prices in the post-IPO secondary market.
There have been 48 initial public offerings completed in 2020, as of September 17, all within the biopharma industry. In 1H 2020, 14 companies completed their IPOs. In the third quarter, we’ve observed more than 2X the frequency of issuers opting to go public. More companies are successfully launching and pricing upsized offerings at a median price of $17/share (at the top of the price range) and completing a median IPO raise of ~$180M (excluding Royalty Pharma).
One can only safely presume that the books for these IPOs were oversubscribed, and post-IPO demand for the stocks has been solid. Currently, ~80% of the 2020 IPO class are trading above their respective open price (graph). More impressively, ~90% of the biotech companies operating past their lock-up period expiry (N=9) are trading above their IPO price.
While this is a great trend to observe for our industry, we believe that investor hype and excitability generated from newsflow regarding a COVID-19 vaccine and therapeutic developments have generally skewed valuations and have increased the 2020 IPO market capitalizations broadly. Currently, ~50% of the 2020 IPO class to date have market capitalizations floating >$1B.
Despite COVID-truncated virtual roadshows and book-building processes, issuers have been able to garner robust market interest. In the second half of 2020, we saw enormous raises from companies like Relay Therapeutics ($400M) and Legend Biotech ($423M). Companies are also executing successful offerings at earlier stages—with ~45% of the class focused on oncology—and are being underwritten by syndicates consisting of bulge bracket investment banks.
Unsurprisingly, the recent IPO frenzy has attracted the attention of ex-US-based companies and has prompted successful offerings in the US. Specifically, Legend Biotech and Genetron from Asia completed large raises, and, most recently, CureVac completed its NASDAQ debut a few weeks ago.
When compared to previous years, the 2020 IPO class has outperformed the previous IPO classes across multiple metrics.
The bounce-back in IPO activity in June and July has brought the frequency of IPOs to nearly the same level as 2019, with a quarter to spare. Companies that went public this year were priced higher and raised more capital; a likely reason supporting the increasing amount of capital is to meet companies’ needs for longer cash runways. More impressively is the percentage of 2020 companies that are trading above their respective IPO prices. This high percentage will be tested in the coming months as lock-up periods expire and investors seek news from clinical pipelines.
If the supply/demand for strong money inflows to life sciences continues, we will see the demand for biotech IPOs continue as well. With four more months remaining in the year, we expect ~15–20 additional filers to capitalize on investor receptivity to offerings. Underlying this boom is the truth that the time to go public is when the window is open.
In a future blog post, we will review life science SPACs, which are similarly attracting strong investor interest.
In sum, capital flows have been extraordinary, supporting one of our abiding principles at Back Bay--there is nothing more dilutive than undercapitalization. The capital availability and the attractive valuations in the public markets are an antidote to concerns regarding overutilization of capital, and the feeling of gas in the tank is always welcome.
However, in biotech, potholes are frequently around the corner. Trial issues, whether recruitment delays (a COVID-19 issue to be sure) or untoward outcomes and the risk of capital market downturns for macro or microeconomic reasons are ever-present.
Thus, the robustness of the capital markets should lead to equal doses of always re-examining prioritization and business development and reviewing the core strategies through the lenses of efficiency, impact, and need.
Sources:
Medcity News, “How the biotech capital markets are faring in the time of COVID-19: https://medcitynews.com/2020/08/how-the-biotech-capital-markets-are-faring-in-the-time-of-covid-19/?rf=1
Brad Loncar’s Biotech Data and IPO Tracker: https://www.loncarblog.com/biotech-2018-ipo
Pitchbook: https://pitchbook.com/