Two Initial Public Offerings are scheduled to price on the public market this week, marking yet another slow week for the nearly halted market.
China Liberal Education Holdings Ltd plans to enter a rocky market this week, offering 1.3 million shares at $6 each. The Chinese education service provider plans to list on the Nasdaq and raise $8 million in its IPO.
ORIC Pharmaceuticals plans to raise $92 million by offering 5 million shares on the Nasdaq by the end of the week. The phase 1 biotech that develops small molecule therapies for treatment resistant cancers will price its IPO between $14 to $16 per share.
Currently, the volatile stock market caused by the coronavirus pandemic has lead to the IPO market favoring biotechs. Three out of the fours IPOs to price during the pandemic's spread in the United States have been biotechs, although none of the recent stocks were for companies focused on creating potential treatments or vaccines for COVID-19. Recent biotech IPOs have also outperformed the broader market, even without producing any treatments for the company's focused studies.
Biotechs are a uniquely favored sector among investors despite not being profitable at the time of their IPO. According to analysis by Jay Ritter, professor of finance at the Warrington College of Business, between 2001 and 2017, only 6% of biotech companies were profitable when they priced on public markets. Yet, at the same time, the average three-year buy-and-hold return for more than 350 biotech companies was 36.3%, which beat the overall market by 14%.
Biotech companies offer investors a better chance of profitability for the long-term, which is what the majority of market participants are trading for. For these companies, unprofitability comes more often from regulatory approvals than bad business models. By pricing, biotechs are able to raise capital that can fund expensive clinical trials, which can result in large future profits. Biotech investors are focused on potential growth over immediate profits, thus leading to long-term returns.