IPOs heat up in summer but fall in autumn
One of the surprises of 2014 so far has been the propensity for medtech companies to go public rather than seek the trade sale that has for so long been the default strategy. Data from EvaluateMedTech show that during the first half of this year $1.3bn had been raised via IPOs – 44% more than the $900m raised in the whole of 2013.
And this has continued into the third quarter of the year (see table below). While there was only one IPO each in August and September, a downturn from the six in July, September’s was the most successful of all: shares in ReWalk Robotics are up 185% on its offer price since it listed just over a month ago. Companies must now ask whether recent successes mean that medtech investors are still eager, or whether the decrease in numbers means that the window is closing.
“We feel that the IPO market is still open,” René Kuijten of the venture capital firm Life Science Partners tells EP Vantage – unsurprisingly, since LSP is planning to float one of its portfolio companies, Nexstim, on the Finnish and Swedish exchanges this year. And medtech companies are queueing up to make their stock market debuts, so clearly this belief is widely shared.
But why has there been such a surge in IPOs so far this year? One possible explanation is the massive consolidation among larger companies that has been the other major trend of 2014. With many of the usual buyers embroiled in megamergers they have less room for smaller acquisitions, meaning smaller companies must find ways of funding their independent existence.
It is also possible that biopharma investors are moving into medtech, Mr Kuijten says. Device companies tend to be more advanced when they come on the public markets compared with drug development groups, he says, so they could be seen as less risky. “Investors that have made money in drug development are considering medtech,” he says.
And while in some cases an IPO is part of a company’s route to building scale and becoming a major player in the sector, it is more often simply a way to raise money to keep the company afloat until it is finally bought out.
“For us the big multiples are not made when the company goes public – normally it’s seen as a financing event, so it’s just a step up, not a huge multiple,” says Mr Kuijten. “The multiple is usually seen later on when the company … is sold. Most of the companies we list actually are sold later on.”
And such is the ardour for medtech that US investors are now willing to risk their cash on companies based elsewhere.
“For the first time in many years we have been able to list Dutch or German companies on the Nasdaq, which has been impossible for a long time,” Mr Kuijten says.
This is borne out by EvaluateMedTech’s IPO data. The French company Pixium Vision has listed in Paris, but Supersonic Imagine (France), Materialise Group (Belgium), Innocoll (Ireland) and ReWalk (Israel) have all floated on Nasdaq. The other seven companies, all Nasdaq-listed, are American.
ReWalk is the most intriguing of these in terms of its share price performance. The stock peaked on September 16, four days after the float, at $42.64 – a 255% increase from the listing price. The company’s chief executive, Larry Jasinski, will not be drawn on why the offering was priced so low – at a 20% discount to the initial range – or why the stock rose so enormously and then fell back.
“I just think people are making decisions. I’m not particularly focused on any one given day or week,” he tells EPVantage. “When people decide to come in or go out is an individual decision.”
He also says that ReWalk’s listing was not simply a way of raising money.
“I think every company has its own reasons for an IPO,” Mr Jasinski says. “Ours is that we’re looking to build a substantial company … there’s really no specific strategy beyond that. Large companies could always make decisions that could change your trajectory, but that’s not our plan.”
But in the words of Mr Kuijten, the nice thing about an IPO is that the company can keep its options open. It can either grow, raise more capital later on and remain independent – though Mr Kuijten says it would eventually have to perform acquisitions itself to compete – or reward shareholders by selling up.
The initial meteoric rise of ReWalk might have been less a sign of investor enthusiasm than of poor pricing decisions by management. Nevertheless it is undeniable that the summer has seen a huge appetite for investment in medtech. The big question remains: can the sector continue to accommodate the same rate of listings without investors’ fervour lessening?