Panelists Report Strong Resurgence of Health-Care IPOs

Shannon Beeman
June 18, 2014

Over the past 18 months, investors have witnessed a strong rebound nationally in the IPO market, particularly in the area of health care. MGCS panelists, who discussed the return of the health-care IPO on Tuesday afternoon, attributed this turnaround to several factors:

  • Overall improvement in the U.S. economy
  • Drug firms’ renewed interest in buying biotechnology companies that have gone public
  • Passage of the JOBS (Jumpstart Our Business Startups) act, which reduced the cost and difficulty of the IPO process for smaller companies

Economic data look favorable for the IPO market, said Ted Omlid, managing director of Evercore Partners. He reported that the S&P 500 is experiencing one of the largest rallies since 1997, and volatility is the lowest it’s been since 2000. Inflows of capital are up, and returns in the health-care index are outpacing those of other sectors. All these positive indicators are good news for companies filing for IPOs.

Within the health-care sector, there have been eight deals in health-care services over the past year and a half, including some exceptionally large IPOs, according to Omlid. Medical technology has languished, due to its approval and adoption risks and a lack of blockbuster products. Life sciences, however, has been a beehive of activity, netting 80 deals totaling $8.5 billion. “Life sciences has been on fire over the past 18 months,” Omlid stated. “A lot of investors are playing event-driven news.” Adding fuel to the fire has been the strong aftermarket performance of many acquired companies. The health-care sector is continuing its breakneck pace in 2014, already racking up 46 IPOs, which represent 18 percent of the total IPO issuance thus far this year.

The IPO process consists of three key parts ― preparation, execution and closing― and companies are well-advised to devote full time and effort to each, the panelists said. “The IPO can be done fairly rapidly, often within three or four months, but companies need to invest in the planning process, which lays the foundation for success and puts them in position to do the transaction,” advised Mitchell Bloom, a partner at Goodwin Procter. “One of the biggest mistakes companies make is not doing enough in advance of the IPO.”

Tim Mayleben, president and CEO of Esperion Therapeutics, compared his company’s IPO experience in July 2013 with the IPO process in back 2000 when as COO of the original Esperion, he took the company public. “It’s much more difficult today to do IPOs,” Mayleben observed. “The market is more challenging. Investors are more seasoned and their expectations are higher. The degree of rigor they put companies through is multifold what it was in 2000.”

Another change Mayleben noted is the shift in investors’ attitudes toward IPOs. “In 2000 when companies went public, pre-IPO investors generally viewed it as cash-out time,” he said. “You don’t see that anymore. Now the IPO is considered another financing round.”