During Singular Genomics’ board meeting this past December, directors hashed out plans to raise another round of financing for the San Diego startup’s work on next generation gene-sequencing instruments and chemistries to help fight cancers and other ailments.
The boardroom was abuzz, however, with news that Seer Inc. of Redwood City — also an early-stage life sciences firm — had just successfully raised money through an initial public stock offering.
“The discussion was: Wow, a pre-revenue diagnostics and tools company just went public. Is that an anomaly or is that the new normal?” said Andrew Spaventa, chief executive of the five-year-old Singular Genomics. “It was the first time that we ever thought about accessing the public markets.”
Six months later, after whirlwind meetings with investment bankers and roadshows with potential investors, Singular Genomics went public as well, raising $258 million in an upsized IPO. The commercial launch of its first product is expected later this year.
Singular Genomics isn’t alone. Over the past 12 months or so, about 20 San Diego companies have gone public in U.S. markets — many of them life-sciences firms.
The region is part of a flood of companies going public nationwide, driven by a roaring stock market, the Federal Reserve’s low interest rates and stimulus policies, and increased investor appetite for the higher risk that often comes with investing in young, unproven companies.
Performance of these newly minted public companies has been mixed. There have been 215 IPOs priced this year nationwide. Of those, 117 have positive returns and 95 don’t, according to industry research firm IPOScoop.com. Three are unchanged.
The average total return from the opening price is 11.7 percent, compared with the 10.7 percent year-to-date gain for the Nasdaq composite index, based on IPOScoop.com’s data.
Locally, 13 San Diego firms tapped public markets in the U.S. and abroad in 2020, said Tim Holl, a San Diego partner with Ernst & Young who works with startups.
“That was the most we’ve had dating back to 2000,” he said. “Now we’ve had 10 already this year, and I expect certainly between now and the end of December we will break through what we did last year.”
Prior to the pandemic, San Diego had roughly 100 publicly traded companies. The recent additions boost that number up by more than 20 percent. That includes breast-tumor biotech Ambrx BioPharma and synthetic biology solutions maker Codex DNA, both of which went public last week.
Ambrx and Codex DNA raised big rounds of venture capital before going public. That VC investment, which has reached record highs for local startups in recent quarters, perhaps foreshadowed their decisions to go public.
“As you look at the venture capital money coming into San Diego, the number of deals over $50 million this year and last year, I look at those as maybe future candidates to tap the public markets,” said Holl.
Startup companies also are going public earlier — particularly in hot sectors such as self-driving vehicle technology and life sciences.
Five or six years ago, a biotechnology firm needed Phase 3 clinical trial data and a path toward regulatory approval to lure IPO investors, said Holl. Today, promising Phase 1 or Phase 2 trial data often is enough.
That might give some investors pause. But John McCamant, an analyst with BioInvest and editor of Medical Technology Stock Newsletter, maintains there is good science behind many of these companies, as the life sciences industry has matured. Just look at COVID-19 vaccines.
“Biotech has never looked better,” he said. “It just saved the world. Vaccines are a 10-year development process. It was done in 10 months with messenger RNA, an unproven technology.”
Is this recent surge in IPOs creating fears of a bubble, akin to the market decline in 2000 led by overvalued Internet stocks?
“We’re not seeing it that way, not at this point,” said Jan Paschal, a partner and managing editor of IPOScoop. “There is a nice mix of sectors. It’s not all biotech. It’s not all tech. We’re not seeing anything crazy.”
Paschal added that life science companies that need the money might as well take advantage of the strong stock market to fund their research and development because “at some point the market might be less friendly.”
Spaventa of Singular Genomics agreed that the company’s decision to go public was “opportunistic.”
“Our story has matured to the point where I think public investors can understand it and realized that the technology is real,” he said. “So it was kind of a perfect storm and the right time to come out of stealth and share our story in an environment that is very attractive right now.”
