(Reuters) - Some of the best seats at the Boston TD Garden arena’s Tuesday night basketball game between the Celtics and the Brooklyn Nets were reserved for guests of H.C. Wainwright, a boutique investment bank specializing in initial public offerings of biotechnology firms.
The guests were biotechnology industry executives and consultants. The message from their hosts was clear: the coronavirus outbreak should not prevent you from going out and enjoying yourselves - or taking your companies public.
“I think bankers are still pretty bullish about IPOs moving forward,” one of the guests, biotechnology consultant Daniel Geffken, founder of Massachusetts-based financial advisory firm Danforth Advisors, told Reuters.
H.C. Wainwright did not respond to a request for comment.
The market for initial public offerings is off to a shaky start this year because of the market volatility fueled by the global spread of the coronavirus. Warner Music Group Corp, the world’s third-largest music recording label, and shoemaker Cole Haan Inc put on ice their plans to kick off their IPO road shows this week due to the stock market jitters, sources said.
However, some companies are braving the turmoil. Last week, gene therapy company Passage Bio Inc PASG.O upsized its planned public offering from 7.4 million to 10 million shares and priced at the top end of its indicated range to raise $216 million in gross proceeds. As of Wednesday, its shares were trading above its IPO price of $18 at close to $20 per share.
GFL Environmental Inc GFL.TO, a North American waste management company that debuted on the New York and Toronto stock markets on Tuesday, priced its shares below its targeted price range and upsized its IPO slightly to raise $1.43 billion. GFL's shares are down 6.6% from their IPO price.
“I don’t think anyone would have predicted that the markets would have been as volatile as they were last week, but I think it’s a testament to our investors and our employees that we were able to pull off the largest IPO in Canadian history during one of the most volatile markets since 2008,” GFL’s Chief Executive Officer Patrick Dovigi said in an interview.
Companies typically discount their shares by about 15 percent during the IPO process to ensure their stock trades up after listing. In times of greater volatility, that discount deepens, meaning fewer firms are willing to test the waters until conditions calm.
IPO proceeds across the corporate world in the United States so far this year are up more than 300% compared with 2019, though last year activity was curtailed because of the U.S. federal government shutdown. Compared with this period in 2018, IPO activity year to date is down around 50%.
(GRAPHIC: U.S. IPO proceeds in first two months of the year - )
Kathleen Smith, principal of Renaissance Capital, a provider of institutional research and IPO ETFs, said companies weighing an IPO should look to the VIX, a measure of market volatility that last week hit its highest level in nine years.
“We can predict that we have a whole lot of companies waiting until volatility comes down,” Smith said. “They are going to wish they went out when times were good.”
Biotechnology is one sector less affected by the wider market turmoil, Smith said. This is because biotechnology companies are typically valued just on the prospects of their drug development program, with less regard among investors for the wider business backdrop. Their IPOs also appeal to a more specialized investor base.
Biotech shares are also popular among investors because they can be prime targets for takeovers that fetch big premiums. Cancer drug researcher Forty Seven Inc FTSV.O went public in June 2018 with a roughly $500 million valuation. This week, Gilead Sciences Inc GILD.O agreed to acquire the company for $4.9 billion, defying the market rout.
In the first two months of 2020, biotechnology and pharmaceutical companies raised $1.45 billion through IPOs, the most since 2014, according to Refinitiv.
Next week, rare disease drugmaker Imara Inc IMRA.O plans to list on Nasdaq, seeking to raise around $75 million.
Reporting by Rebecca Spalding and Joshua Franklin in New York; Editing by Greg Roumeliotis and Dan Grebler
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