Floating medtechs go big or go home

IPOs in the medical device sector are bigger than in biotech, but performance, at least of the biggest groups, is mixed.

IPO

So far in 2021 the public markets have proved remarkably receptive to floating medical device companies. 10 device and diagnostics groups listed on Western exchanges in the first half, and the total raised, at $3.3bn, is the largest six-month figure for three years.

The second quarter did see a decline from the first in both the number of flotations and the amount raised, but it is surely too early to conclude that the window is creaking shut.

The first IPO of 2021 was also the biggest. Ortho-Clinical Diagnostics, formerly a J&J unit sold to private equity in 2014, floated on Nasdaq in a deal worth nearly $1.5bn. These mega-IPOs, once unheard of in the medical device sector, are becoming more popular: one billion dollar-plus IPO has occurred every year since 2016, with the exception of 2017.

The chart below does not include Ortho-Clinical’s IPO or any of the other megadeals, to give a better picture of the underlying IPO trends in the medical technology industry.

Ortho-Clinical is unusual in that it had to price its offering at a steep discount to its preannounced range to get investors on board. The only other group that had to do this was the orthopaedics firm Bioventus, which went out at a 13% haircut.

The preponderance of in vitro diagnostics companies among the medtechs that have gone public so far this year is a continuation of a trend that has been clear for some time; of the 19 medtechs to float last year, six were diagnostics groups.

5 biggest medtech IPOs of H1 2021
Date Company Focus Amount raised ($m) Discount/ premium Share price change to Jun 30
Jan 28 Ortho-Clinical Diagnostics In vitro diagnostics 1,486  (21%) 26%
Feb 11 Signify Health Healthcare IT 649 17% 27%
May 27 Singular Genomics Systems In vitro diagnostics 258 5% 25%
Feb 11 Talis Biomedical In vitro diagnostics 254 7%  (31%)
Feb 5 Lucira Health In vitro diagnostics 176 6%  (61%)
All listings on Nasdaq, except Signify on the NYSE. Source: Evaluate Medtech & company websites.

Overall, most of the newly public groups have performed well since: only three have seen their share prices decline since their debuts.

But what is intriguing is how poorly some of this year’s diagnostics flotations have done once on the stock market. Last November Lucira became the first company to gain US authorisation for a home-based Covid-19 test that detects the virus’s RNA, an impressive achievement for a tiny private group. 

Lucira launched an upsized offering in early February at $17, and soon hit a high of $37, but shed value rapidly after that, becoming the worst-performing market debutante of the first half. It is likely that the falling demand for Covid-19 testing in the US is at least partly to blame for Lucira’s disappointing showing – something that would also help explain Talis Biomedical’s 31% share price fall.

The overall message for device makers wishing to float appears to be: go big or go home. All but one of the medtech deals raised at least $100m. And, even excluding Ortho-Clinical’s megadeal, the largest medtech IPO – Signify Health’s $649m offering on the NYSE – dwarfed biotech’s biggest

Again excluding Ortho-Clinical, the average amount raised by floating medtechs over the first half was $174m, versus biotech’s $158m. With deep-pocketed VCs happy to keep funding those groups that prefer to remain private, it seems that only the companies that know they can raise big bucks bother braving the stock exchanges.

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