While the tech IPO market may have been dead for months until last week’s public offering of used car marketplace Vroom, investors in biotech IPOs have seemed unfazed by the covid-19 crisis.
A total of 20 US-based life sciences companies have launched their IPOs in 2020, accounting for more than 80 percent of all the VC-backed public listings so far this year, according to PitchBook data.
This trend will likely continue through the summer.
This week, three VC-backed biotech start-ups are expected to make their public debuts. Forma Therapeutics, a Watertown, Massachusetts-based developer of treatments for rare hematologic cancers and diseases plans to IPO at a $676 million market cap, Repare Therapeutics, a pre-clinical precision oncology company operating out of Montreal and Boston, is looking to debut at $589 million on Nasdaq, and a San Diego molecular diagnostics provider Progenity expects to start trading at a valuation of $720 million, according to Renaissance Capital.
“I am hearing that there will be a lot of biotech companies coming out over the summer. July and August are going to be very busy,” said Robert Freedman, a partner with the law firm Fenwick, where he co-chairs capital markets practice and focuses on life sciences.
“Despite what is going on with covid-19, these companies are seeing interest from public markets as long as there is strong management and compelling technology in place,” Freedman said.
This year’s biotech IPOs have been mostly pricing at the high end of their range and even above that, said Freedman, who added that he does not know if the offerings were initially priced conservatively amid concerns over the pandemic.
While public market investors are enthusiastic about biotech companies, it does not mean that the sector is immune to the impact of lockdowns. Some researchers are not going to work at the labs and many clinical trials are on hold, Freedman said.
Several factors may help to attract investor interest.
Since most biotech companies launching their IPOs are pre-revenue and six to 10 years away from bringing a product to market, investors view this sector as “long-term play,” Freedman explained.
These IPOs are also relatively small. “Unlike on the tech side where you have large IPOs, few biotech companies raise more than $100 million in an offering. None of these companies individually suck up all the investor dollars,” he said.
Lastly, the pandemic itself may have helped to emphasize the importance of the healthcare market.
As for VC investors, their journey with biotech companies generally does not end with the IPO. In fact, venture capitalists are often buying additional shares at the offering price and often remain shareholders of the public companies for many years, Freedman explained.
Potential future headwinds for biotech IPOs is the presidential election in November and a possible return of covid-19, Freedman said. “All companies we are working with now want to be public no later than October,” he said.