Ipreo in the News
30 September 10
Strong September May Be Impetus For More Health-Care IPOs
NEW YORK (Dow Jones)--The strong performance of the equities market in recent weeks may help thaw the market for IPOs in the health-care sector, which has been by far the worst-performing industry for public offerings this year.
Private health-care companies have been hesitant to go public in a year when nearly every IPO in the sector priced below its initial expected range and mostly declined from there.
But market observers think many companies, particularly biotechs with late-stage drugs, can't wait much longer, and the broader-market gains in September may be enough to spark a handful of health-care IPOs by year end. That said, a significant turnaround isn't anticipated until next year.
"We always say that when the markets are ready, we'll be ready," said Thomas Schall, chief executive of ChemoCentryx Inc., a biotechnology company considered ripe for an IPO.
Health-care companies have made relatively weak IPOs for years, in large part because they often require investors to take gambles on yet-to-be approved products. But the sector's underperformance has accelerated this year as investors have been particularly skittish.
Shares of health-care companies that have gone public in the U.S. this year are down an average of 15% from their pricings, compared with an average 12% gain across all sectors, according to data and analytics company Ipreo. That disparity has increased in recent years. In 2006, health-care companies traded down 6.5% from their IPOs through September of that year, compared with a 5.8% gain across all sectors.
Of the companies in the sector that have gone public this year, GenMark Diagnostics Inc. (GNMK) is the worst performer, according to Ipreo. It priced 33% below the middle of its initial expected range and is currently trading about 44% below the price it went public. Other weak performers have been Anthera Pharmaceuticals Inc. (ANTH), down 42% from its offer price, and Tengion Inc. (TNGN), off 36%.
That track record has nearly dried up the market for health-care offerings. So far this year, health-care IPO volume is 58% below where it was in the same period in 2006, while overall IPO volume is down only 21% in that time frame, Ipreo said.
Some companies waiting to go public have been able to find alternative sources of cash through partnerships and mergers.
"If a company doesn't need to raise funds through accessing the IPO market currently, they won't," Canaccord Genuity analyst Ritu Baral said. "They'd rather look at the 2011 time frame where the market might be better."
But market observers think a handful of companies are beginning to accept the idea of going public at a lower-than-hoped-for valuation.
"Companies and venture capitalists are realizing they can't maximize value at the time of the IPO anymore," said Thomas Dietz, head of investment banking at Wedbush Securities.
Currently there are 20 health-care companies that have filed for IPOs, but none has set a pricing date, Ipreo said, based on a search of filings that goes back six months.
September's stock market rally might change that. The S&P 500 is up about 8.9% this month, with the health-care component of the index rising about the same level, following months of significant underperformance.
"I would say people are getting more hopeful, but it's definitely cautious optimism," said Stephen Dunn, president of the biotech investment bank LifeTech Capital.
Along with ChemoCentryx, another company market observers point to as a potentially attractive IPO is Portola Pharmaceuticals Inc., a biotech that focuses on cardiovascular disease and inflammation.
Chief Financial Officer Mardi Dier said Portola, which has two drugs that completed Phase II studies, would like to go public, but is aiming for 2011 at this point. The performance of peers' IPOs is important, but not a key factor, she said.
"If no IPOs go out between now and March, that doesn't necessarily mean we won't go out," she said. "It's just a nice thing to have."
While a few deals might be done this year, Evan McCulloch, portfolio manager of Franklin Templeton's Biotechnology Discovery Fund (FBDIX), said he expects the real turnaround to come in February or March.
"We're going to see some deals this year, and it will probably be led by the strongest IPO candidates, which will lead to a more robust IPO market continuing into 2011," McCulloch said.
-By Jennifer Cummings, Dow Jones Newswires
