This year, it seems like any biotech with a molecule and a futuristic name can cash in big on Wall Street, as dozens of drug developers have raked in billions from an IPO market that seems to have forgotten the downturn ever happened.
But despite renewed investor fervor and no shortage of promising technologies, medical device outfits had so far been largely loath to join in. Now, with LDR bagging an over-allotted, top-of-its range debut, is it time for med tech's big moment?
In the first medical device IPO of the year, the Austin, TX, company ($LDRH) traded 5.75 million shares for about $86.3 million, and, perhaps more important, lined the pockets of investors in the process. LDR priced its IPO at $15 a share but opened 20% higher at about $18, reaching nearly $20 before closing its first day on the Street at $19.35.
That's an encouraging first foray for the industry, and it may well buoy the device world's next contender, Tandem Diabetes Care. The San Diego insulin pump mainstay has filed for a $100 million IPO to help expand its super-small t:slim device and bankroll R&D. The company hasn't specified how many shares it'll sell or when it'll go public.
But even if Tandem notches a debut as impressive as LDR's, that'll make just two medical device IPOs in a year in which a whopping 38 biotech companies have raised nearly $3 billion in first offerings.
The numerical disparity highlights a key difference between the two realms. One impressive cancer study can quadruple a biotech's market value--and one toxic flare-up can level it to a penny stock--but waters in the device world tend to be more staid. Developing anything akin to a "blockbuster" medical device requires long-term relationships with physicians, plodding negotiations with CMS and a costly investment in manufacturing.
Medical device companies--and, by extension, their stocks--usually don't present the same promising/terrifying risk/reward ratio that gets investors so starry-eyed about drug developers, and that's reflected in the IPO scene.
Take LDR and Tandem: Both already have FDA OKs for proven-effective devices, and both, despite forecasting continued losses, have convincing plans for global revenue growth. Now look on the biotech side: Intrexon ($XON), which raised $184 million in its August debut, may well never turn a profit, last year losing $103 million on revenue of $14 million, and Agios Pharmaceuticals ($AGIO) priced a $106 million IPO without a shred of clinical data on any of its drug candidates.
Don't expect to see a medical device company raise that kind of money off a strong animal study.
And while diagnostics companies have had a bit more success with three IPOs this year, the same principle is borne out in the testing space. NanoString ($NSTG) and Cancer Genetics ($CGIX) both repeatedly scaled back their IPO plans before finally going public, at each turn finding less-than-enthusiastic investors. Only Foundation Medicine ($FMI), with its Third Rock pedigree and genomic know-how, had an impressive debut, raising $106 million. But then Foundation had something the others lacked: a trove of discovery and companion deals for promising drugs from the likes of Johnson & Johnson ($JNJ), Novartis ($NVS) and Sanofi ($SNY).
A cervical disc is not a small molecule, and, for the medical device industry, 2013's IPO boom may amount to just another reminder of that.
-- Damian Garde (email | Twitter)