Clean energy, biomedical top Houston IPOs
The number of local companies launching initial public offerings fell by nearly half from the previous year as the oil and gas industry, typically fertile ground for new companies here, lost favor with investors during a difficult 2019.
Only four Houston companies went public in 2019, compared to seven in 2018, and raised a combined $568 million, down from nearly $1 billion raised by local IPOs the previous year. In 2018, oil and gas experienced a resurgence; five of the seven IPOs were launched by energy companies.
Last year, life sciences attracted the most interest from investors. Two of the four companies that went public were in life sciences: CNS Pharmaceuticals, which is developing brain tumor treatments; and Castle Biosciences, which produces melanoma diagnostic technologies.
The other IPOs were launched by Sunnova Energy, one of the nation’s largest solar companies, and Landcadia Holdings II, a blank check company in billionaire Tilman Fertitta’s business empire. Blank check companies are created to raise funds from investors, then merge with or acquire another business.
Houston reflected national trends in which IPOs largely came from biotech and digital health companies, said Jeff Zell, a senior analyst at IPO Boutique, a research firm focused on initial and secondary stock offerings.
“When it comes to IPOs,” Zell said, “most investors are chasing growth and they want to see revenue numbers and bottom lines increase.”
Oil and gas companies, for that reason, have not been a good bet for investors as the industry struggled with lackluster commodity prices and earnings. Conditions for energy companies have only gotten worse in 2020 with the coronavirusdriven oil bust.
What has remained promising, investors indicated, were renewables.
The share price of Sunnova Energy, which sells residential solar and battery systems, dipped when the stock began trading on the New York Stock Exchange, but has been on a steady upward trend, said Sunnova CEO John Berger.
Sunnova’s initial $12 a share price had risen about $19 earlier this month. Sunnova raised nearly $170 million in its IPO. Berger credited an international trend toward batteries, solar power and cleaner energy with the recovery of the company’s stock.
“A lot of investors, who are more conservative,” he said, “were looking to see how Sunnova compared to West Coast-based firms.”
The biggest offering came from billionaire Fertitta, whose blank check company Landcadia Holdings II did an initial $275 million offering in May 2019. Fertitta launched the company with New York-based Jefferies
Financial Group in 2019. Those proceeds eventually went toward taking Fertitta’s 7-year-old Golden Nugget Online Gaming public.
The future is medical
Castle Biosciences, however, saw the biggest growth in share price since its debut among the local companies. Its stock price nearly tripled to $43 per share in recent weeks from its initial offer price of $16 on the Nasdaq exchange.
The IPO raised $73.6 million for Castle, which produces skin cancer diagnostic tests. The proceeds established operating reserves and helped fasttrack the diagnostic tests toward wider commercial availability, said founder and CEO Derek Maetzold.
Sales are limited to clinicians, but orders last year still jumped 32 percent. Castle more than doubled its revenues to $51.8 million in 2019 from $22.8 million in 2018.
“We have nearly all our proceeds in the bank,” Maetzold said, “but just because revenue growth has far outpaced expectations.”
CNS Pharmaceuticals, whose stock debuted at $4 a share on Nasdaq, raised $8.5 million to provide financing to get its cancer drug into clinical trials.
With the pandemic, all eyes are on biotech and medical companies seeking to find treatments and cures not only for COVID-19, but also for other diseases.
“Obviously, COVID helped out with the pharmaceutical storyline,” Zell, the IPO analyst, said. “Even moving forward, people will be eager with biotech.”
“Even moving forward, people will be eager with biotech.” Jeff Zell, a senior analyst at IPO Boutique