It didn’t look good for IPOs when the pandemic took hold. COVID-19, social distancing and general uncertainty upended the public markets, leading Renaissance Capital to predict IPOs to “grind to a virtual halt” in the spring.
But experts predicted that biotech IPOs would be the silver lining in an otherwise dismal year. What they didn’t predict was just how successful the sector would be.
“I was the most bullish, aggressive person ever with my prediction and I was off by almost 50%. I had to revise it twice,” said Jordan Saxe, the head of healthcare listings at Nasdaq. “By all measures, it was a record-setting year, not only in the number of IPOs, but the performance IPOs and their pricing outcomes."
The Nasdaq saw 102 healthcare IPOs that raised $23.6 billion in proceeds when Fierce Biotech caught up with Saxe in early December. Of those 102 deals, 82 were biotech companies going public, raising a total of $15 billion and blowing the previous two years’ performance out of the water.
“If we look at biotech last year, it was 55 deals raising $5.6 billion in proceeds, so we’ve tripled the proceeds raised,” Saxe said. “What’s also interesting to note is that 2018 was kind of the peak biotech year, with 72 biotech deals raising $8.4 billion in proceeds.”
Saxe chalks up 2020’s performance to a handful of factors unique to the biotech sector. For one, biotech investors are “deploying capital with a long-term view versus a quarter-to-quarter sales impact,” he said. Unlike other industries, like retail, biotech investors are playing the long game, expecting milestone readouts in maybe a year’s time, rather than in the next few months.
“You do have that smoothing-out effect of the long-term nature of healthcare investment that you don’t get with high tech or consumer-based retail investments,” Saxe said.
Another factor is innovation: “If you truly want to invest in innovation, you’re basically looking at the biopharma sector,” Saxe said, giving the example of the COVID-19 vaccines developed by Moderna and tandem Pfizer and BioNTech.
“Dosing people with mRNA vaccines is something that has never been done before—that is true innovation,” Saxe said. “From a long-term value creation point of view, it is truly rewarding versus what some of the other investing opportunities look like.”
And speaking of COVID-19, the pandemic itself has been a driver of biotech investment. Of course, healthcare-focused investors and VC firms with healthcare practices have long understood the value of biotech, Saxe said, but the pandemic has catapulted the sector into the public consciousness.
“Everyone is now aware and interested in PCR tests, molecular biology and vaccines, and how helpful they can be to solve this global pandemic,” Saxe said.
Though biotech IPOs had a record year, it didn’t mean pulling one off was a piece of cake. When Dominic Piscitelli joined ORIC Pharmaceuticals as its chief financial officer in 2019, an IPO in early 2020 was on the cards.
“We filed the S-1 confidentially at the end of February and we had the ability to flip as early as mid-March. We were fortunately in a pretty strong cash position at the end of 2019 and our goal was to continue to grow and raise capital to expand the pipeline,” said Piscitelli who had taken his previous company, AnaptysBio public as well.
“When the pandemic hit, it put a monkey wrench in our plans,” he said. “We were really watching this on a day-to-day basis to see if it did or didn’t make sense (to go public).”
The company, which is working on drugs to overcome cancer resistance, had enough cash runway that it could wait the pandemic out. It ultimately decided to list in April because “we had received positive feedback from the TTW (test-the-waters) meeting and we didn’t know how long the pandemic would last and what 2020 would look like post-pandemic,” Piscitelli said.
And it looks like April was the right choice: ORIC priced its IPO at $120 million, eclipsing the $86 million goal it set out in its securities filing.
Similarly, Akouos, a biotech working on gene therapies for hearing disorders, could have waited to go public. It had raised a meaty series B in March and started preparing for its IPO “before we understood the real impact of COVID-19 in the U.S.,” said CEO Manny Simons.
As the impact became clearer, the company pushed through the process, figuring that being overprepared and delaying the IPO was better than the alternative. Akouos eventually filed to raise $100 million in its IPO in early June and priced it at $212.5 million later that month.
Because of social distancing rules, both ORIC and Akouos did at least parts of their IPOs virtually. Instead of embarking on a two-week roadshow involving planes, trains and cars and “scrambling around to get as many investor meetings on the calendar as possible,” ORIC condensed the roadshow into four days of Zoom meetings.
It may be more difficult to build rapport with investors over videoconferencing, but Piscitelli said investors’ familiarity with himself and ORIC CEO Jacob Chacko, M.D., was a big help.
It was doubly nerve-wracking for Akouos as the company went oldschool, using the phone rather than videoconferencing.
“I wasn’t sure how it was going to work because I had assumed new investors, in particular, would want to see the management team, interact with them and ready the body language.”
But familiarity was on Akouos’ side, too—the company had engaged with many public market investors as it raised its series A and B rounds.
“A lot of key investors were not meeting us for the first time in the IPO process,” Simons said.
Piscitelli and Simons agreed that virtual meetings will probably stick around in the IPO process, but that there is still a desire for people to meet face to face.
“I hope we would not just revert to the original approach because there are some natural inefficiencies there,” Piscitelli said. “But in our current approach, I think we lose something without having that in-person interaction with new investors.”
Instead of doing every meeting in-person, Piscitelli envisions companies traveling to, say, three major cities, and meeting everyone else on Zoom.
As for what will happen in 2021, it’s anyone’s guess. There are plenty of biotechs in the pipeline to keep up the pace we saw this year, so it all depends on investor appetite.
“I don’t know if we’re going to beat this number again, when we look back on the perfect storm of factors that led to the number of healthcare deals getting out,” Saxe said. He figures biotech IPOs will top out at 85 by the end of 2020. Based on that and the 55 IPOs done in 2019, he thinks 2021 will fall somewhere in between.
“The 65 to 70 range would be my guess, looking at the pipeline and marketing conditions,” he said. “It could change in a quick minute, but assuming the factors stay somewhat the same, we are having really good conversations with biotech companies who have filed confidentially but have not flipped over yet.”