Biotech Has Quietly Become the Busiest Corner of the IPO Market
Sean here.
Chris and I (yes, you can call us the DOS Bros.) couldn’t be more excited to have you with us as we analyze new IPOs and decide which ones may be worth your time and money … and when.
Now, Chris has been giving you all kinds of helpful information about how Day One Syndicate works, and what you can expect from us as we get things rolling here.
And as he’s explained, the IPO cycle can be very lumpy.
We may have very active stretches where the entire market is racing to bring companies of all stripes public…
Or more focused ones where certain industries are doing lots of listings (much like we’ll be talking about momentarily).
And by the same token, there will be quieter periods — maybe during a market pullback, or even just a summer lull or other random gap when not many companies are pulling the trigger.
Or even if they ARE, maybe they aren’t companies that we LIKE very much.
But not to worry, in fat times and in lean, you’ll always have our most up-to-date thinking and analysis of this side of the market
And, most importantly, what you should be on the lookout for next!
We’re starting out in one of those quiet periods. So while we don’t have a recommendation for you today, there’s still a LOT to catch you up on.
So let’s get right to it.
We’ve been seeing a MAJOR driving force in the IPO market for the past several months.
And surprisingly, it has NOTHING to do with A.I.!
Giving the IPO Market A Shot in the Arm
So where has a disproportionate chunk of the IPO action been coming from lately?
One word:
Biotech.
Over the past three months, eleven biotech and drug-development companies have priced IPOs on the Nasdaq.
That makes it the largest group of operating-company IPOs in our database since early July.
Together, they raised about $2.5 billion before over-allotments.
So now you know what’s been going on.
But how have these biotech IPOs actually performed?
Prescription-Strength Pops
To find out, we measured each stock from the opening price on its SECOND trading day of trading — because with our system, it would be EXTREMELY unusual for us to buy anything sooner — to the highest intraday price it has hit since then.
Just to see what was possible.
Vogenx led the pack.
It priced at $13 and went nowhere on its first day.
But it nearly TRIPLED quick. It peaked at $38.41 on Sept. 18, just over ONE MONTH after listing.
Scribe Therapeutics, a gene-editing company, also made an impressive showing. It climbed 84% from its second-day open to a peak of $39.60 on Aug. 20, just 19 trading days after listing.
And with about 20 open market days per month, again that’s around a month to its max.
Best-Performing Biotech IPOs Since July
Three other newly public biotechs — Braveheart Bio, Electra and ADARx — peaked 8%, 4% and 15% above their second-day opens, each hitting that high on the second day of trading.
(The last two — Retension Pharma and TRexBio — just priced a few days ago, so we’re still watching to see how things shake out for those.)
Side Effects May Include Volatility
Those are peak prices, not where the stocks trade today.
Only three of the six companies listed in the table above — Vogenx, Scribe and BlossomHill — are currently in the black as of this writing.
That’s the nature of clinical-stage biotech: Stocks IPO and trade on trial data that hasn’t arrived yet.
Still, a group of brand-new companies climbing anywhere from 27% to 193% within about six weeks or less of listing doesn’t happen in a sleepy corner of the market.
So WHY aren’t more people talking about this?
That’s unclear.
But it’s their loss, I guess.
As my 16-year-old would say, “We got you, Chat.”
Small Caps, Big Dose
While these companies slipping under the market-watchers’ radar may be surprising, it WOULDN’T be for anyone who was watching what’s REALLY been happening in the broader market.
Fortunately, we’ve been doing just that.
Over the last 12 months — through Sept. 25 — healthcare companies OUTSIDE the S&P 500 gained an average of 71.2%.
That’s the best return of any sector in the entire market, inside or outside the index.
And it’s important that these were the companies NOT part of the S&P 500.
These were the LITTLE guys.
These were THE INNOVATORS.
Sound familiar?
These non-S&P figures weight every company equally, so a small biotech counts as much as a giant.
For context, the S&P 500 itself rose 18.2% over the same period, weighted by company size the way the index is normally quoted.
So, EVEN WITH the S&P move dominated by the Mag 7 tech giants, small healthcare companies crushed the index.
The runner-up AFTER non-S&P healthcare was S&P 500 technology, up 59.0%.
THAT, ladies and gentlemen, is the group with Nvidia, Microsoft and Apple.
And that return was after equal-weighting S&P Tech.
If we let those tech giants throw their weight around like normal, the sector turned in a LOWER 35.0% trailing twelve month gain.
Here’s how the two paths stack up:
Trailing 12-Month Performance: Non-S&P 500 Health Care vs. the Market
And here’s the kicker.
It wasn’t just one lucky stock.
The typical non-S&P healthcare company gained around 24.5%, and about two-thirds of them rose.
Remove the 10 best performers and the group STILL gained 64.0%.
Refills Pending
Now admittedly, those 11 recent biotech IPOs we were talking about didn’t just trickle in.
Seven of them priced in a fairly tight group between July 24 and Aug. 12.
That’s some of that lumpiness I mentioned earlier.
Then mid-August brought a lull.
But it seems like ANOTHER wave my have already begun.
Electra Therapeutics raised $350 million at $15 a share on Sept. 18.
A week later, ADARx Pharmaceuticals raised $446 million at $17 a share, the largest deal of the nine.
Just this past Friday, TRexBio raised $117 million and Retension added another $45 million to the collective kitty.
And between Sept. 18 and 25 alone, at least four more healthcare companies filed to go public.
Two more biotechs — Iambic Therapeutics and City Therapeutics — are on deck for later this week!
So the real question isn’t whether biotech has momentum.
It’s what we do about it.
Now, does all this mean that our opening recommendation will be from the biotech space?
Maybe!
But also … maybe not.
While we’ve got the upcoming Iambic and City IPOs currently scored as Not Investable on the website, circumstances can change after we see their first-day price action.
We also consider other factors than JUST the IPO Scores when making a decision about which IPOs to buy.
So, stick around to find out.
Stay tuned!
Sean (& Chris!),
The DOS Bros.
