Thursday February 11th brought about the trading introduction of two now public companies, bringing the total number of IPO’s on the year to four. However, last Thursday may be a sign of a new Initial Public Offering tendency. In the month of January, stock markets around the world faltered significantly, effectively closing the market for IPO’s. That downward trend had firms acting hesitantly, as the current rate of IPO’s on the year is down 80% in comparison to 2015 according to Renaissance Capital.
All four of the companies that have gone public in 2016 all fall within the same industry, biotechnology, and have gone about their IPO’s in irregular fashion. This is due to the elevated levels of buyers inside the industry powering the initial public offerings. Kathleen Smith, principal at Renaissance Capital, looked at this phenomenon and labeled last Thursday’s offerings “quasi-IPOs”. Smith elaborated on her point by saying, “We’re seeing an increasing amount of insider buying [in biotechnology]… Other IPOs don’t seem to have that angle to such an extent”.
The extreme rates of insider buying support the idea that these companies were in need of this contribution in order to successfully go public. Kathleen Smith does not view this as a necessarily worrisome signal; rather she proclaimed it is a “creative” method of introducing a public offering. This sensation may also prove beneficial for private investors, as they may be able to attain returns.
One of the main factors in a biotech firm deciding to go public is to raise capital for clinical trials. Investors are seemingly more inclined to put their money towards investing in biotech firms, due to the potential value they have the ability to produce. Executive VP of listing services at Nasdaq Nelson Griggs publically stated, “There’s a golden age of biotech, where they are solving some incredibly massive challenges”.