FEBRUARY RECAP & BEYOND
We are off to an interesting start to the year! Healthcare stocks sold off in February in tandem with the S&P, but are still outperforming on a relative basis and remain up YTD. The sell-off was largely driven by an improvement in underlying economic indicators as inflation tics upwards and the Fed signaled plans to lift rates from the theoretical lower bound. Coincidentally, February also marked the close of 2017 year-end reporting which yielded few surprises as results were largely in line with the many pre-announcements earlier in the year. Included in this issue are our recent blog posts: How to Maximize your Time & Get the Best Exposure at Investment Banking and Industry Conferences; Considerations for Choosing an Investment Bank Partner; What’s the Consensus on Guidance and How to Communicate a Management Transition to Your Investors.
Capital Markets Led by Biotech
There were three Life Sciences IPOs priced in February, bringing the total to nine year-to-date. Over 60 follow-on offerings have priced year-to-date as of the end of February, which is more than double where we were at this time in 2017. The lion’s share of financing was from biotech companies bolstering their balance sheets with a median deal size of roughly $50 million.
Positive Medical Device Fundamentals Continue
Despite the sector’s poor February price performance, the 2017 year-end reports have been resoundingly solid, and 2018 guidance remains largely positive. As we highlighted in our recap of the J.P. Morgan Healthcare conference, the number of companies pre-announcing earnings hit an all-time high with roughly a third of our 150-company subset universe opting to do so. Results were overwhelmingly positive with 80% either beating consensus or exceeding guidance expectations.
Across the sector, expectations for M&A activity of publicly traded companies within the Life Sciences sector remains strong with projections for ~20% more deal announcements in 2018 versus 2017. This is in part driven by cash returning to large-caps from repatriation. If Q1 public acquisitions are indicative of future deals, buying growth can be a pricey endeavor made incrementally more expensive as growth targets remain aggressive.