After a sluggish few years, the IPO market came back to life in 2013, led by a surge of IPOs by life sciences companies. In this lw.com interview, Latham & Watkins partner Peter Handrinos explains what’s behind this uptick and offers advice to life sciences companies considering an IPO.
Is the current surge in IPOs specific to life sciences?
Handrinos: The IPO space, generally, is doing pretty well, but where it is very active is in the life sciences space. The market has what I would call an average sort of robustness for the other industries. In other industries, I don't think the market is showing any incredible signs of very favorable conditions — a company that could have gone public a couple years ago continues to be the one that can go out currently. Whereas, in life sciences we had very little activity a few years ago and now there are many folks looking to IPO. There are some other folks who seem to be benefiting from the success of a few high profile IPOs in the tech space, and we are seeing some good performance in that space, but life sciences is leading the charge.
What factors are causing the surge?
Handrinos: Generally speaking, there are favorable investment conditions in the biotech market. The large cap stocks are doing well and money is flowing into the space from the generalist investor, which provides an interest in the space and in companies in the space. Folks seem to like the IPO product.
Some have speculated the IPO market is overheated and could cool down quickly in the near future. Do you anticipate this happening?
Handrinos: It’s difficult to really know at this point. We continue to see a bunch of interesting companies seeking to go out. If folks are thinking about a bubble it might only be in life sciences, where there is more activity than you might expect. Still, I have not seen a level of activity that would far exceed what is expected or make me think we are certainly headed for trouble.
There are some really good, quality companies bobbing around and it is important to remember that for several years there was a weak IPO market, so there were several companies that were standing by looking for an IPO window. So, some of the activity we saw last year, which had an unprecedented level of deals, comes from the fact that we had quite a bit of backlog.
What advice do you have for companies in the life sciences space considering an IPO?
Handrinos: Now is definitely the time to do it. The accommodations made possible by the JOBS Act have helped facilitate offerings. For example, one of the specific requirements of investing in life sciences IPOs is that folks have a deep understanding of the science that is involved with the potential products being developed. You can’t really effectively do that in just a couple day roadshow looking at few metrics like you might be able to do in other sectors. So, it is very important for the life sciences company today that is thinking about going public to get out there and have its story understood by some of the important investors, get talking to folks, and have the diligence part of the process addressed early on, rather than waiting. The folks who do a good job of that, tend to fare pretty well.