School is back in session, football season is under way, and the post-Labor Day IPO market has provided new investment opportunities, with some shining stocks debuting in the healthcare sector.
Last week, three healthcare companies completed their IPOs: 10X Genomics (NASDAQ:TXG), SpringWorks Therapeutics (NASDAQ: SWTX), and Satsuma Pharmaceuticals (NASDAQ: STSA). On Wednesday, IGM Biosciences (NASDAQ: IGMS) and Envista Holdings (NYSE: NVST) began trading, followed by Exagen (NASDAQ: XGN) debuting on the market Thursday.
Despite underperformance in the biotech sector as exemplified by the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) and the SPDR S&P Biotech ETF (NYSE: XBI), an appetite for new issues remains.
1. 10X Genomics: Creating tools to understand complex biology
Investors have a lot of love for 10X Genomics. The stock has risen 56% from its $39 IPO price. 10X develops and markets tools to help researchers uncover what is happening inside human cells. These new insights will hopefully translate into better treatments for patients. Much like selling picks and shovels during the gold rush, customers are lining up for 10X's tools and technologies to the tune of $146 million in revenue for 2018. In the first half of 2019, 10X generated $109 million in revenue, an 85% growth rate compared to the same period in 2018. Revenue growth like that makes this stock one to watch.
2. SpringWorks Therapeutics: Developing targeted therapies for rare cancers
SpringWorks fits the bill of a more traditional biotech IPO. Blue-chip healthcare specialist funds Orbimed, Perceptive Advisors, and Bain, along with Pfizer (NYSE:PFE) provided the early money to acquire and advance SpringWorks' pipeline of targeted treatments for underserved patients with rare forms of cancer. Two of the drugs, including the lead compound nerogacestat, came through exclusive licences with Pfizer, so it's safe to assume the groundwork is solid. The IPO proceeds will fund the on-going Phase 3 trial of nerogacestat in desmoid tumors. This investment will require patience as top-line data is not expected until Q2 or Q3 2021.
3. Satsuma Pharmaceuticals: Delivering relief from migraines
Like SpringWorks, Satsuma listed on the Nasdaq to fund a Phase 3 trial. Its drug-device combination product consists of dihydroergotamine, a common treatment for migraine, in a unique, single-use nasal delivery device for easy administration by the patient. Lower-risk strategies like this can be lucrative if the product delivers convenience and efficacy to patients. As an investment, the stock is in the range of its $15 IPO price. Top-line data from the Phase 3 trial are expected in the second half of 2020. If the trial is successful, this single-product company could be a takeover target for a larger pharmaceutical company looking for valuable acquisitions.
4. IGM Biosciences: Scientifically compelling but early stage
IGM's stock popped to $24 yesterday after being priced at $16 for its IPO. Scientifically, IGM discovers and develops IgM antibodies. These structurally unique antibodies provide stronger binding to difficult targets and the ability to induce greater destruction of cancer cells. Sounds exciting, right? However, the lead compound IGM-2323 targets two proteins CD20 and CD3 (CD20xCD3). Regeneron, Xencor, and Roche all have molecules targeting CD20xCD3 ahead of IGM-2323 in human clinical trials. IGM needs to differentiate IGM-2323 from the other drugs in development competing to treat the same patients. Additionally, it would be good for investors to see the company select novel targets for future programs.
5. Envista Holdings: Creating a stand-alone dental business
This week, investors witnessed the IPO of Envista, the dental business of Danaher (NYSE:DHR), a Fortune 500 global conglomerate focused on environmental solutions, diagnostics, and life sciences sectors. While public, Danaher still owns more than 80% of Envista's outstanding shares. Envista generated in excess of $2.8 billion in revenue last year and nearly $1.4 billion in the first half of 2019. The reason for this spin-off is that Danaher believes the dental business will get a better valuation if it's independent from the parent. Further, Envista can use capital from its own balance sheet or issue its new stock to make future acquisitions to fuel growth.
6. Exagen: Diagnostics for chronic autoimmune disease
The last and smallest IPO on the list is Exagen, a developer of diagnostic tests that help doctors make treatment decisions for patients with autoimmune diseases. Exagen raised approximately $47 million in its IPO, and its market cap is in the $200 million range. The stock gained more than 30% on its first day of trading. Exagen posted a loss of almost $4.3 million on sales of $19.7 million in the first half of 2019. It may be worth taking a closer look once the company breaks even. Until then, wait to see if doctors continue to adopt Exagen's diagnostic tests.
IPOs are speculative by nature. Established revenue-generating companies like Envista and 10X Genomics are arguably less risky with plenty of room for growth. Exagen needs to prove itself to get excited about owning it. IGM and SpringWorks have the most intriguing science, but it will take a few years to generate clinical data. As a single-product company, Satsuma's success is tied to the binary outcome of its Phase 3 clinical trial.