Since November 2023, the IPO market for companies has shown some signs of life – dare we say, “green shoots.” Over the most recent 15-week period, 10 firms transition to their new chapters as publicly listed companies. In 8 of the 10 cases, the stock price has risen above the new issue price, with notable increases from Cargo Therapeutics (“CRGX”) +55.0%; Arrivent Biopharma (“AVBP”) + 28.9%; and CG Oncology (“CGON”) + 129.5% (as of EOD, February 23).
These transactions have added to the increasing degree of optimism that has crept back into the market after a disappointing 2023. However, is the list of successful transactions truly the beginning of a favorable trend that can be expected to continue during the coming quarters? Anecdotal evidence suggests that companies who had previously filed the necessary paperwork with the SEC over the last two years are revisiting those documents, as other companies prepare to file their S-1 materials.
Clearly, one of the common themes associated with the companies that have recently priced deals is the availability of favorable Phase II data and a late-stage program with a clear path forward. The other theme that has taken hold is M&A with large pharma companies on the hunt for new drugs to fill gaps in a pipeline caused by losses on patent protection for drugs like Humira (Abbvie), a biologic for autoimmune diseases, and Crestor (AstraZeneca), a statin for managing cholesterol.
While market participants assess the positive performance of some of these recent deals, the last 18 months have been challenging for companies looking to raise funds in the private markets. Healthcare-related private equity deal value fell by more than 60 percent from 2021 through the end of 2023, its lowest level since 2016, according to Pitchbook’s “2023 Annual US PE Breakdown.” However, over the last six months, a number of private equity firms have closed large funding rounds. Orbimed ($4.3 billion in October), TPG ($15.6 billion closed in Q4) and Venrock ($650 million in January), along with a number of other firms, raised new capital, reflecting confidence in healthcare’s growth potential and each firm’s ability to generate attractive returns through strategic investments in innovative healthcare ventures.
New financing activity in 2024 is off to a good start, however, uncertainty in the market remains a concern. Recent statistics point to an overall economy that remains somewhat heated as the labor market remains strong and inflation – in the form of CPI and PPI measures — has stayed stubbornly high. Consequently, investors have reassessed their forecasts, anticipating a decline in interest rate targets from the Federal Reserve and uncertain prospects for the U.S. economy. This, in turn, may impact company valuations.
Given the scientific advancements, technical innovation, and population dynamics, the healthcare sector will continue to attract growth capital from both public and private investors. Time will tell if the positive trend we have seen in the first two months of 2024 will continue to be our friend as companies look to continue to advance their research and development and improve outcomes for patients.
ICR Westwicke has helped more than 60 healthcare companies with successful IPOs. Get in touch to discuss how your company should prepare to enter the public markets.
