In prior years, it was almost a foregone conclusion that promising digital health startups would be acquired by other companies before having the opportunity to debut on the public markets. However, that changed in 2019, which was declared the “year of the digital health IPO.”

The trend continued in 2020, even as the U.S. economy struggled to recover from the economic shock brought about by the COVID-19 pandemic. Six digital health companies took the traditional IPO route in 2020 and another became publicly traded in a Special Purpose Acquisition Company (SPAC) transaction.

Analysts are expecting another healthy crop of digital health companies to join the public markets in 2021. Companies such as Clover and Hims already have via SPAC deals, and others, like Talkspace, have announced plans to do the same.

As analysts and investors weigh the potential risks and rewards of upcoming digital health IPOs, they will be looking closely at the reception that comparable companies have received during the past year from the public markets.

With these trends in mind, what does the current landscape for the digital health IPO class of 2020 look like?

The Companies

The digital health companies that went public last year have distinctly different value propositions when it comes to using new technologies to create a positive healthcare experience. But looking at their post-IPO performance, it’s clear they have some important things in common: Most of the class of 2020 is performing well on the markets, and investor sentiment surrounding all of them remains positive.

Here is a snapshot:

  • Accolade, an employee insurance benefits navigation tool, priced its stock (ACCD) at $22 per share and jumped 35% in its first day of trading. Its stock was trading at $46 per share 180 days after its IPO, and analysts agree that it is still a good buy.
  • Telemedicine company Amwell priced its shares at $18 and closed about 28% above that on its first day of trading in September 2020. Its stock (AMWL) was trading at $34 per share a month later, and $26 per share three months after its debut. Analysts are still calling the stock a buy.
  • Medicare-focused health insurance marketplace GoHealth went public last July at $21 per share. And while the stock (GOCO) is trading at a lower price today, analysts are saying the price dip represents a good buying opportunity, as the company looks to have high growth and improved margins in its future.
  • GoodRx, an online pharmacy, set its price at $33 per share and jumped more than 50% on its first day of trading last September. The company’s stock (GDRX) traded at $52 per share a month after its IPO, and it trades in that same range today. Analysts continue to assess GDRX as a good buy.
  • Outset Medical, the maker of portable dialysis machines, priced its stock (OM) at $27 per share when it debuted on the market in September, jumping more than 124% on its first day of trading. Three months after the IPO, OM was trading at around $50 per share. Most analysts are bullish and rate the stock a buy.
  • Schrodinger, a digital health company bringing artificial intelligence into the world of drug discovery, began trading at around $17 per share in February of 2020. The stock (SDGR) trades have been above $80 per share since early January, and is rated by analysts as a buy.
  • SOC Telemed, a telemedicine company that went public via a SPAC in July when startup SOC Telemed acquired “blank check company” Healthcare Merger, is trading lower today than the $10 per share it commanded in its debut last February. Most analysts, however, say the company’s stock (TLMD) is a good one to buy.

Stock prices change by the day, and analysts do not always agree on whether investors should buy, hold or sell any given security. But broadly speaking, digital health’s newest public companies—its class of 2020—are still commanding good prices in the market and receiving positive reviews from analysts.

Sentiment can be far more telling than day-to-day stock price when gauging companies’ future prospects, and the sentiment surrounding the class of 2020 ranges from positive to downright bullish.

Looking Ahead

We will likely see quite a few digital health IPOs in 2021, including companies entering the public markets in SPAC deals. In such transactions, a privately held company acquires an already public, “blank-check” company in order to list on an exchange.

SPACs used to represent just a small fraction of IPOs, but now make up more than a third of all market debuts. Some VCs recommend these deals as a more efficient and cost-effective way to reach the public markets, while others staunchly defend the traditional IPO route.

The SPAC trend may have started in other corners of the technology world, but it has since arrived in healthcare. The past two years have seen dozens of SPAC IPOs in the biotech sector, and digital health looks to be moving in the same direction.

Traditional IPOs are still going strong, too, even in sectors like biotech where SPACs have gained popularity. Some of the best performing newly public biotech companies—including Prelude Therapeutics, Atea Pharmaceuticals and Sigilon Therapeutics—took the traditional route to the public markets last year.

It will be interesting to watch how IPOs may unfold in 2021. If your company is planning one—or if you are planning to invest in one—we are here to assist as you consider your options. And, if you think the SPAC option may be a right fit, check out Fenwick’s SPAC resources, particularly our recent primer on the exit strategy discussing some of the most important aspects to consider.

Also follow me​ on Twitter for additional news and insights.​

Originally published February 17, 2021, on Fenwick's Life Sciences Legal Insights blog​.

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