Healthcare IPO dreamers not ready to throw in the towel despite recent market slump. Will 2019 stack up to 2018?

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It’s now Daylight Saving Time and the question on the heretofore gloomy minds of a lot of us healthcare stock editorialists is: Will it be boom or kaboom for IPOs in 2019. At the end of 2018, the stock market contracted, but capital markets gurus weren’t frazzled.

According to Renaissance Capital, 190 companies pursued IPOs in 2018, raising $46.8 billion. The number of filers increased 19% and proceeds increased 32% over 2017’s strong results. After a selloff in the fourth quarter, newly listed companies underperformed and IPO issuances slowed.

Between the market movement, trade war and public battles between the White House and the Federal Reserve, you’d think that a lukewarm IPO climate is ahead. But capital markets executives surveyed in December are resilient, even optimistic, in the face of volatility. Forty-two percent say IPO activity will increase in 2019, even though a majority expect a further, broader market correction will occur this year.

Why were bankers so bullish even when expecting further market moves? The 2019 BDO IPO Outlook Survey, which polled 100 capital markets execs at leading investment banks in December 2018, suggests that the pro-business climate, strong performance of most IPOs and potential for long-term growth was keeping market worries at bay.

Then came Mr. Trump’s record 35-day government shutdown. The partial shutdown that began at the end of 2018 included the Securities and Exchange Commission, delaying IPO plans for many companies. While companies may be delayed in their IPO quests, Renaissance predicts many will be undaunted in their plans; while still others may be forced to seek alternative capital-raising tactics.

Lee Duran, a partner at BDO USA, LLP, had this perceptive observation:

“It’s fair to say there are mixed economic signals. Market dips are generally followed by a rally, employment figures continue to be strong, and major players–like ride-share companies–still appear to be moving along in their IPO plans. But the government shutdown that lasted through the beginning of 2019 is an X-factor. With the SEC delays in completing reviews, Q1 results may lag, but long-term growth opportunities could still drive a comeback.”

Seventy-one percent of bankers surveyed in December predicted IPO activity will increase or stay about the same in 2019. A majority of capital markets executives (61%) expect the average size of US IPOs will be in the $200 million to $299 million range, which is on par with 2018 averages. However, if a number of the highly-valued tech and biotech companies follow through with going public in 2019, it may be a record-breaking year for total capital raising.

This optimism came even as 52% of bankers forecasted a market correction in 2019, and respondents were watching real-time declines throughout December. A correction did hit at the end of the month, and the S&P 500 ended 2018 with its worst annual performance since 2008.

Is the worst over? Interest rates rose four times in 2018, suggesting confidence in the economy at the Fed (even as President Trump blamed rate increases for the selloff), but bankers appear to believe there’s more market change ahead. Only about one-in-five executives did not foresee a market correction.

Fast-forward to today, and as of March 9, 2019, the Renaissance IPO Index was up 26.8% year-to-date, while the S&P 500 had a gain of 10.1%. Looks like the December prognosticators’ predictions were on target. So, let’s come back to our bi-weekly collection of healthcare IPO data and, sure enough, there are pricings, new filings, amendments to filings and a withdrawal. And that’s the typical action you’d expect from another “normal” IPO market, if the experts are right about 2019 resembling 2018, even with a broader correction somewhere down the road.

Here’s the latest action:

Week of March 4, 2019:

1) ShockWave Medical Inc., which sells medical systems used in treating cardiovascular disease, raised $97 million in its initial public offering of 5.7 million shares at $17 each. The company had originally planned to offer 5.0 million shares at a range of $14 to $16.

Additionally, insider Abiomed agreed to invest $10 million in a concurrent private placement. Shockwave bills itself as a medical device company focused on developing and commercializing products intended to transform the way calcified cardiovascular disease is treated. It aims to establish a new standard of care for medical device treatment of atherosclerotic cardiovascular disease through its differentiated and proprietary local delivery of sonic pressure waves for the treatment of calcified plaque, which it refers to as IVL.

Santa Clara, CA-based ShockWave Medical lists on the Nasdaq under the symbol “SWAV.” Morgan Stanley and BofA Merrill Lynch acted as lead managers on the deal. Shares closed their first trading week up a whopping 86% at $31.61. They held their ground today, March 11, closing at $31.43.

2) Ardent Health Partners, an LBO’d operator of 30 acute care hospitals, reported financial results to the SEC for the year end December 31, 2018. It originally filed with the SEC to raise up to $100 million in an initial public offering. However, the deal size is likely a placeholder for an IPO that Ardent estimates could raise as much as $400 million.

Ardent describes itself as “a cost-effective quality healthcare and related services in nine growing urban markets across Texas, New Mexico, Oklahoma, New Jersey, Idaho, Florida and Kansas.” As of December 31, 2018, it operated 30 acute-care hospitals, including one managed hospital, two rehabilitation hospitals and two surgical hospitals, with a total of 4,395 licensed beds, and provided physician and other ancillary healthcare services through a network of more than 1,000 employed providers.

Nashville, TN-based Ardent was founded in 1993 and booked $4.2 billion in sales for the 12 months ended December 31, 2018. It plans to list on the NYSE under the symbol “ARDT.” Barclays, Citi, J.P. Morgan, BofA Merrill Lynch, Credit Suisse, Goldman Sachs and RBC Capital Markets are the joint bookrunners on the deal.

3) PolyPid Ltd., which is developing extended-release drugs to prevent surgical site infections, officially withdrew its plans for an IPO last Tuesday, after postponing the deal in March 2018. It had filed to raise $75 million by offering 3.3 million shares at a price range of $21 to $24. The Petach Tikva, Israel-based company was founded in 2008 and had planned to list on the Nasdaq under the symbol “POLY.” Goldman Sachs, Cowen and Cantor Fitzgerald were set to be the joint bookrunners on the deal.

4) Included among recent SEC filings, Silk Road Medical Inc., which sells medical devices used in transcarotid artery revascularization (TCAR) for the treatment of carotid artery disease, registered an IPO of up to $86 million worth of common stock.

Silk Road Medical describes itself as a medical device company focused on reducing the risk of stroke and its devastating impact. It believes a key to stroke prevention is minimally-invasive and technologically advanced intervention to safely and effectively treat carotid artery disease, one of the leading causes of stroke. It says it is the first and only company to obtain FDA approvals, secure specific Medicare reimbursement coverage, and commercialize products engineered and indicated for use in TCAR.

Sunnyvale, CA-based Silk Road was founded in 2007 and booked $35 million in sales for the 12 months ended December 31, 2018. It plans to list on the Nasdaq under the symbol “SILK.” J.P. Morgan and BofA Merrill Lynch are the joint bookrunners on the deal. No pricing terms were disclosed.

Week of Feb. 25, 2019:

5) Included among recent SEC filings for initial public offerings, Precision BioSciences Inc., an early-stage cancer biotech developing gene-edited Car T Cell therapies, registered up to $100 million worth of common stock. The Durham, NC-based company was founded in 2006 and booked $11 million in collaboration revenue for the 12 months ended December 31, 2018. It plans to list on the Nasdaq under the symbol “DTIL.”

J.P. Morgan, Goldman Sachs, Jefferies and Barclays are the joint bookrunners on the deal. No pricing terms were disclosed. Precision describes itself as a genome-editing company dedicated to improving life through its proprietary genome editing platform, ARCUS. The company is leveraging ARCUS in the development of product candidates which are designed to treat human diseases and create healthy and sustainable food and agricultural solutions.

Precision is actively developing product candidates in three areas: allogeneic CAR T immunotherapy, in vivo gene correction and food.

6) Kaleido Biosciences Inc., an early-stage biotech developing oral microbiome therapies, raised $75 million by offering 5 million shares at $15, below the range of $20 to $22. The company had originally planned to raise $100 million by offering 4.8 million shares. Bedford, MA-based Kaleido Biosciences plans to list on the Nasdaq under the symbol “KLDO.”

Goldman Sachs, J.P. Morgan and Morgan Stanley acted as lead managers on the deal. Kaleido bills itself as a clinical-stage healthcare company with a differentiated, chemistry-driven approach focused on leveraging the potential of the microbiome organ to treat disease and improve human health. The company has built a human-centric proprietary product platform for discovery and development that it believes will enable the rapid advancement of product candidates into non-IND human clinical studies under regulations supporting research with food.

Kaleido’s product candidates are Microbiome Metabolic Therapies, or MMTs, which are designed to modulate the metabolic output and profile of the microbiome by driving the function and distribution of the organ’s existing microbes. Shares closed their first trading week down 2% at $14.77. They closed today, March 11, at $13.50, down 10% from their IPO price.

7) And Genfit SA, a Phase 3 biotech developing therapies for NASH, registered up to $100 million worth of common in an initial public offering. The Loos, France-based company was founded in 1999 and booked $9 million in sales for the 12 months ended December 31, 2018. It plans to list on the Nasdaq under the symbol “GNFT.”

SVB Leerink and Barclays are the joint bookrunners on the deal. No pricing terms were disclosed. The late-stage clinical biopharmaceutical company says it’s dedicated to the discovery and development of innovative drug candidates and diagnostic solutions targeting metabolic and liver-related diseases where there is considerable unmet medical need.

Genfit claims to be a leader in the field of nuclear receptor-based drug discovery with “a rich history and strong scientific heritage spanning almost two decades.” It is currently evaluating its most advanced drug candidate, elafibranor, in a pivotal Phase 3 clinical trial as a potential treatment for nonalcoholic steatohepatitis, or NASH.

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