A Comment on IPO Returns

The stock market is on its longest bull run in modern history. The biopharma industry, in particular, is in the longest and most active financing window in its history.

Leerink Partners, a leading U.S.-based investment bank specializing in healthcare, recently published a report on the flow of public equity capital into U.S. biopharma stocks over the past 6 years, having analysed the performance[…]

The stock market is on its longest bull run in modern history. The biopharma industry, in particular, is in the longest and most active financing window in its history.

Leerink Partners, a leading U.S.-based investment bank specializing in healthcare, recently published a report on the flow of public equity capital into U.S. biopharma stocks over the past 6 years, having analysed the performance of 269 new issues in the sector over that period. The number of companies conducting IPO’s and the amount of capital raised during that 6-year period was close to that of the entire preceding history of the biopharma industry.

The key investor statistics are:

  • The 269 IPO’s raised in total US$24.1 billion with an average size of $90 million.
  • The 1-day, 1-week, 1-month and 3-month mean returns were +14%, +15%, +24% and +23% respectively (median returns +3%, +3%, +9% and +13% respectively).
  • On a long-term basis, only 44% of stocks generated a positive return over the 6-years
  • Only 35% generated an annualized return of 10% of greater from the IPO price
  • Less than 50% delivered annualized cumulative returns that beat the overall market,
  • The mean annualized return for the entire sector was 6%, well below the overall market return for the same period.

Biopharma investment is not for the faint-hearted. It’s a tough, high-risk sector as drug development is expensive and carries high failure rates, long product development times, and often long periods of silence. There are few other market sectors with quite the same sharp binary outcome, evidenced by more than 80% of the positive returns out of the entire 269 IPO’s coming from 20% of the IPO’s.

This led me to wonder: where does the Noxopharm IPO fit in the Australian context? 

NOX listed in August 2016 with a $0.20 issue price. In that year, there were 96 IPO’s, including 8 healthcare stocks (RCE, VBS, ONE, VHT, RAC, OVN, NOX, CPH). Of those IPO’s:

  • 49 are currently below their issue price, with a mean decline of -62%
  • 47 are at or above their issue price with a mean increase of +281%
  • The overall average change has been +105% over almost 2 years
  • The average change for the 8 healthcare stocks is +32.7%
  • As of last week, NOX had a +175% return. It is the highest of the 8 healthcare stocks and the 6th highest overall stock

For the investor, picking which side of the binary divide the company is likely to fall on is one consideration. Another one is what the size of ‘success’ will look like.

We have a vision of Veyondaâ becoming a standard adjunct treatment to radiotherapy, boosting the benefit of radiotherapy in the order of 3-times and providing meaningful survival benefits in a safe, well-tolerated way.

In 2016, in Australia alone, there were 60,600 courses of radiotherapy, which translates to well over 1 million course of radiotherapy each year globally.  If we are able to confirm the benefit of Veyondaâ as a standard companion to radiotherapy in the treatment of cancer, then the opportunity ahead for Veyondaâis very significant. It is our expectation is that the benefit of Veyondaâ will be across most, if not all forms, of solid cancer.