Had it not been for Convatec last year would have been quiet on the IPO markets, albeit with a slight improvement in the later months. The UK company pulled off the largest IPO in the medical technology sector’s history, with its former owners raising £1.4bn ($1.9bn) listing it on the London exchange in October.
This is, to say the least, an outlier. The second-largest IPO was Irhythm Technologies’ $107m offering on Nasdaq a week earlier, the only other $100m-plus listing of 2016. Setting Convatec aside, compared with the previous two years, the public markets do not seem greatly receptive – hardly surprising in an era of great political uncertainty.
The fact that Convatec got its offering away in London – post-Brexit-vote London at that – rather than Nasdaq makes the achievement all the more impressive (Mega float could push Convatec towards profit, October 26, 2016). In fact so enormous was the offering that in all of healthcare there has only been one larger: that of Otsuka, which raised $2.4bn in Tokyo back in 2010.
It is more than its size that makes this deal far from a typical listing. The IPO was not a step on the corporate development path, or a source of capital for a growing company. Instead it was an exit for Convatec’s private equity backers, which had owned the woundcare and surgical equipment maker since 2008.
As a marker of the receptiveness of the markets, however, it is worth examining. And, intriguingly, London seems to be enjoying a mini-boom, with three medtech floats in 2016 after a three-year lull. Perhaps these companies are counting on investors believing that medtech will be a safer area than biotech in the years after Brexit.
|Medtech IPOs in London, 2011-2016|
|Date||Company||Amount raised ($m)||Exchange||Offering price (£)||Change since float|
|December 9, 2016||Creo Medical||26.3||LSE||0.76||7%|
|October 26, 2016||Convatec||1,947.9||LSE||2.25||4%|
|May 18, 2016||Oncimmune||15.9||LSE||1.30||1%|
|April 18, 2013||Cambridge Cognition||10.0||AIM||0.70||(3%)|
|November 17, 2011||Sphere Medical||22.1||AIM||0.93||(1%)|
That said, the performance of London-listed companies has not been overly impressive. Stock in the three companies that floated on the LSE this year has risen around 4% on average, far below the 25% average rise of the seven US-listed companies. Restricting this further to just those that went out on Nasdaq brings the average rise to 30%.
This doubtless partly reflects the election of Donald Trump as US president, along with the clean sweep of Congress by the Republican party. The US medtech export tax – detested by industry – is now all but certain to be repealed.
But there is a downside for industry. The Affordable Care Act, partly funded by the medtech tax, is also set for repeal, and the consequences of this could be dramatic. What, if anything, the coming US government intends to implement as a replacement for the ACA is far from clear and, with potential cuts to Medicare and Medicaid looming, device players could find they have a shrinking US customer base.
|Top 10 medtech IPOs of 2016|
|Date||Company||Amount raised ($m)||Exchange||Offering price||Change since float|
|October 20||Irhythm Technologies||107.0||Nasdaq||$17.00||76%|
|October 6||Obalon Therapeutics||75.0||Nasdaq||$15.00||(41%)|
|September 29||Tabula Rasa Healthcare||51.6||Nasdaq||$12.00||25%|
|July 28||Tactile Medical||41.2||Nasdaq||$10.00||64%|
|December 9||Creo Medical||26.3||LSE||£0.76||7%|
|May 18||Pulse Biosciences||20.0||Nasdaq||$4.00||63%|
|June 3||Sensus Healthcare||11.0||Nasdaq||$5.50||(5%)|
Another aspect of the sudden London glut is that it seems to have stolen Europe’s thunder: not a single medtech company listed on Euronext last year, though the urology specialist Invent Medic raised $3m by floating on the Stockholm exchange. Even back in 2013, when the IPO window was barely open, three IPOs went out on Euronext or Alternext. With the Eurozone crisis having stabilised but the UK seemingly staring down the barrel of a very hard Brexit indeed, this situation seems rather odd.
To get a handle on the trends present in the IPO markets it is important to consider the metrics without the distortion of Convatec. A look at the capital raised via listings over the past four years shows that 2016 overall was the weakest since EP Vantage started tracking IPOs, with 12 deals raising $406m. But the quarterly totals rose steadily throughout 2016, perhaps pointing to a resurgence; 2017 could see the markets on the upswing once more.
The US president-elect’s recent comments on drug pricing, for example, could drive investors to desert biotech in favour of medtech, making the public markets a more fruitful source of capital for expansion-minded device groups.
Companies are finding it harder than ever to charm money from venture investors, so this would be a welcome change. But on the public markets as elsewhere, nothing is certain.