2022’s First IPOs All Struggled. This Is Why.

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The first initial public offerings of 2022, a trio of biotech companies, went public with dismal results.

Amylyx Pharmaceuticals
,
and

Vigil Neuroscience

both dropped below their issue prices while CinCor Pharma ended flat. The lackluster debuts signal that the IPO market has yet to recover from 2021’s downturn. 

The three are the first to trade since new issues went on pause in December. After a rousing 11 months in 2021, where IPOs delivered their best year ever, inflation and Omicron issues slowed offerings in December. Only a dozen companies went public that month using a traditional IPO, down from 34 in November and 39 in October.

Biotechs are less sensitive to overall market trends, said Matt Kennedy, senior IPO strategist at Renaissance Capital, enabling them to go ahead while other firms have not.

The muted first day for Friday’s trio is a continuation of 2021’s dismal IPO returns, he said. Of the 397 companies that went public in 2021 using a traditional IPO, roughly 31%, or 121, are trading above their offer price, he said. This means 69% are below their IPO price. 

The performance of 2021’s class of biotechs is worse. Of the 94 companies that listed last year, only 15 are trading above their issue price, Kennedy said. Some investors are still “holding out hope for a pop,” he said, but there isn’t much demand for new deals right now. “There’s only so long that goes on before initial investors stop showing up, and then we may see a pause in activity,” he said. 

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A key point may come next week, when two high-profile deals are set to open. TPG, a large private-equity firm, and Justworks, an HR software company, are both scheduled to trade. If the companies end up slashing their price ranges, that would indicate the IPO market is challenging even for profitable companies, Kennedy said. “You don’t come off a year like 2021 and get back to normal in just a few weeks. We need to see [recent IPOs] returns improve before we can expect normal deal flow,” he  said.     

Cincor (ticker:

CINC

), which is developing therapies to treat hypertension and other cardio-renal diseases, was the first to open Friday. Cincor raised nearly $194 million after selling 12.1 million shares at $16. It had filed to offer 11 million shares priced at $15 to $17. Shares kicked off at $21 and dropped, frequently trading above and below the $16 IPO price before closing at that level.

Shares of Amylyx (

AMLX

), meanwhile, kicked off at $21 and ended the day at $18.07, nearly 5% below its issue price. Amylyx is focused on therapies to treat ALS and other neurodegenerative diseases. Amylyx, which also boosted the size of its deal, raised $190 million after selling 10 million shares priced at $19 each. It had planned on offering 8.75 million at $18 to $20.

Vigil (

VIGL

), which aims to provide treatments for neurodegenerative diseases, collected $98 million after selling 7 million shares at $14, below its $15-to-$17 price range. Vigil opened at $12, below its IPO price, and closed down nearly 10% to $12.65.

Jordan Stuart, a market strategist for the Federated Hermes Kaufmann funds that focus on small-, mid-, and large-cap companies and invests in IPOs, has one word of advice for investors: patience. 

Many biotechs went public in 2021 at a very early stage and it may make sense to wait for a “timing catalyst” before investing, Stuart said. He pointed to Federated’s experience with

Moderna

(MRNA), which went public in 2018. Federated passed on buying into the IPO “because there was nothing urgent” to prompt their investment, Stuart said.

But in January 2020, the Centers for Disease Control and Prevention, or CDC, detected the first U.S. case of Covid-19, and by March, businesses across the nation were closing in an attempt to stop the spread of the virus. Federated invested in Moderna in the first quarter of 2020 at around $30 a share, Stuart said.

The biotech’s Covid-19 vaccine received emergency-use authorization by the FDA later that year, in December. Moderna’s stock hit a high of $384.86 in September and is now trading at $213.58. Federated, across its funds, owned a significant stake in Moderna as of Sept. 30, Stuart said.

While the investment manager may have left some money on the table by waiting, Stuart estimates that Federated has made from five to 10 times its money with its Moderna investment. “It’s good that companies are coming out very early. But given the heat of last year’s IPO market, patience can be a virtue,” he said.

Write to Luisa Beltran at [email protected]