The IPO that didn’t pop
This summer’s boom for biotech IPOs has followed a familiar path: Companies up-size their offerings, price them at the top of the range, and then watch as share prices soar on the first day of trading. But for the industry’s latest debutant, Pandion Therapeutics, that last part didn’t quite come through.
The company raised $135 million by pricing 7.5 million shares at $18 each. But by the close of trading on Friday, those shares were worth just $18.10. That’s a stark contrast to recent history. Fifteen biotech companies have gone public since June, and all but three of them saw their share prices jump on the first day of trading. At the median, those companies increased in value by about 51% on Day 1.
On the one hand, Pandion’s performance suggests its bankers set the share price just about perfectly. But it’s worth considering that the customary first-day bounce, called an “IPO pop,” often exists by design. Bankers commonly set IPO prices below what the market will ultimately bear, creating a one-day surge in valuation that wins positive headlines and delivers some free money to their stock-buying clients. (That money effectively comes out of the pockets of a given company’s original investors, which is why some venture capitalists are less than enamored with the process.)
Through that lens, the fact that Pandion broke biotech’s recent mold signals the company may have overestimated its value.
The company raised $135 million by pricing 7.5 million shares at $18 each. But by the close of trading on Friday, those shares were worth just $18.10. That’s a stark contrast to recent history. Fifteen biotech companies have gone public since June, and all but three of them saw their share prices jump on the first day of trading. At the median, those companies increased in value by about 51% on Day 1.
On the one hand, Pandion’s performance suggests its bankers set the share price just about perfectly. But it’s worth considering that the customary first-day bounce, called an “IPO pop,” often exists by design. Bankers commonly set IPO prices below what the market will ultimately bear, creating a one-day surge in valuation that wins positive headlines and delivers some free money to their stock-buying clients. (That money effectively comes out of the pockets of a given company’s original investors, which is why some venture capitalists are less than enamored with the process.)
Through that lens, the fact that Pandion broke biotech’s recent mold signals the company may have overestimated its value.
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