BOULDER — COVID-19 pulled the rug out from under discretionary spending in the world’s largest economies, so it seems like this might be one of the worst times in recent memory for a company to make an initial public offering. However, ArcherDX Inc.’s plans to raise $100 million by going public could buck that trend as health-care offerings have become the darling of IPO watchers.
The initial shock to the world’s economy from COVID generated massive volatility in the markets and brought appetite for IPO investment to a near halt, according to a recap of the IPO activity in the first quarter of 2020 by Renaissance Capital.
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A total of 25 IPOs in the period raised $6.78 billion, below initial expectations from the start of 2020. The average stock debut lost 6.6% of its stock price compared with its initial offering price, the report found, specifically due to the increased volatility in the market and the broader sell-off.
That doesn’t bode well for public companies to be, except for one sector that outperformed the entire market: health-care stocks.
David Nierengarten, managing director of biotechnology equity research at Wedbush Securities, told BizWest that biotechnology companies in particular garnered continued interest despite the earlier anxieties in the stock market because their products are insulated from drops in consumer spending.
In other words, consumers can hold off on spending on plane tickets, hotels, or buying a new car or television in the midst of an economic crisis. But if people are diagnosed with cancer, they won’t be able to wait out the pandemic to get treatment.
“If there’s a spot that the ultimate end-user demand is not affected by this current situation, it’s likely to be drugs,” he said.
That demand, particularly for treatments for cancer and other life-threatening conditions, is likely to be more consistent than other health-care services such as dentistry, vision care and elective procedures that can be delayed for multiple months.
Nierengarten noted there may be a broad delay in clinical trials as sites reserve their capacity for fast-tracked COVID-19 studies. Biodesix Inc., a fellow Boulder-based cancer testing company, halted a joint Phase II trial with AVEO Oncology Inc. (Nasdaq: AVEO) in March for that particular reason.
“What I’ve seen is a bifurcation of the market into companies that are not really affected by the situation because either their clinical trials are completed, or they haven’t even started their clinical trials yet,” he said.
Several biotech companies shined during their stock debuts in the first part of the year. Schrodinger Inc. (Nasdaq: SDGR), which produces drug-discovery software, debuted on Feb. 5 at $17 per share and has since more than tripled in price to around $67 as of Wednesday.
Yet other biotech offerings weren’t as successful.
Black Diamond Therapeutics Inc. (Nasdaq: BDTX) is perhaps the closest case study in recent months to ArcherDX as both companies are in precision oncology research. Black Diamond’s debut at $39.48 per share on Jan. 30 mostly suffered in the mid-March selloff, with its stock dropping as low as about $18 per share. As of Wednesday, it has rebounded to the $38 level.
As the financial world keeps an eye on the continuing economic fallout caused by the coronavirus and pays special attention to any firm developing treatment or vaccine candidates, how much interest will there be in an oncology company when ArcherDX debuts on the Nasdaq?
ArcherDX estimates the market for optimizing and monitoring therapies in cancer patients can be as much as $45 billion. Of that, $40 billion is estimated to come from in-vitro diagnostics tests, such as the company’s Stratafide platform. Stratafide has already received Breakthrough Therapy status from the U.S. Food and Drug Administration, and ArcherDX said in its filing it plans to submit it for final sale approval this year.
While it already had revenues of $50.56 million last year from developing companion tests for drugs made by large pharmaceutical companies, the approval of Stratafide and other broad genomic tests are the crux of the company’s long-term plan toward profitability.