Monday, August 21, 2000
The amount of money being thrown at toolkit IPOs in 2000 still reflects the genomics craze that began in the fourth quarter last year. So far this year, toolkit companies are beating up product IPOs in aggregate raised, average money raised per deal, total deals, post-money valuation, and aftermarket performance.
Of the 49 NASDAQ-listed IPOs this year, 28 fall into the toolkit category, the majority of which are companies offering the promise of value creation from the genetic code. The toolkit group has raised $2.8 billion, $900 million more than the $1.9 billion raised by product IPOs. The average toolkit deal is raising $100.6 million, $9.4 million more than its product counterpart; and the average toolkit company is going out valued at $431.2 million, $14.4 million above the product plays.
More importantly for investors, toolkit companies are widening the valuation delta in the aftermarket. The average toolkit company is up 61 percent through last Friday, and now commands a $695.6 million valuation. Product companies have traded up 54 percent on average and now stand at a $640 million market cap, nothing to sniff at, but still $55.6 million beneath the average toolkit.
The availability of the genetic map is fanning the flames of the toolkit frenzy. Prior to the announcement of the rough draft on June 26, product IPOs had outsold toolkit companies 12 to 9, raising $1.3 billion versus the toolkits' $982.3 million. Since then, 19 toolkit companies have floated on NASDAQ, raising $1.8 billion compared to the $643.6 million raised by 9 members of the product group.
The quick profits that investors see are skewing their expectations, and some IPO buyers are miffed if a deal doesn't trade up 50-plus percent in the first week according to Pacific Growth banker George Milstein. He noted that the 27 biotech and non-biotech IPOs that priced the week ended Aug. 11 increased 23 percent in their first week of trading, but said he hears many buysiders lament that they didn't put more money on the big gainers. "Several years ago we used to look at a 15 percent move as a good debut," said Milstein. Now, "people get disappointed and that shouldn't be the case. If an investor bought the basket of 27 IPOs they'd be up 23 percent - which is a nice move - but they're saying 'I wish I bought the one that was up 200 percent.'"
Milstein still sees demand for biotech IPOs, but expects that the market will be selective through the remainder of August, a traditionally soft time for financings as executives and Wall Streeters escape for vacation before the summer ends.