After a couple of years in the doldrums, last year was a busy one for initial public offerings in healthcare. But the action was limited mainly to companies with "genomics" or "e-commerce" in their business descriptions.
Stoked by a hot stock market in the first half of the year, the number of healthcare IPOs in 2000 was triple the 1999 tally and the dollar value was double. Last year there were 83 deals worth $7.1 billion, compared with 27 offerings that raised $3.6 billion in 1999, according to data released by Advest, a Hartford, Conn.-based investment bank.
Monsanto Co., a St. Louis-based life sciences company, led last year's list with its $700 million offering. Just one hospital company, Community Health Systems, Brentwood, Tenn., went public. It was second on the list with a $244 million issue. Out-of-favor sectors such as managed care, physician practice management and skilled nursing were shut out. Software and Internet start-ups fared better with six deals.
So far, 2001 has been off to a slow start, with three offerings completed, says Roger Kahn, managing director and co-head of the healthcare group in the New York office of Tucker Anthony Sutro Capital Markets.
Those deals are Align Technology, a Santa Clara, Calif.-based maker of orthodontics devices; Exact Sciences Corp., a Maynard, Mass., genomics company; and Third Wave Technologies, Madison, Wis., which also conducts genetic research.
Activity could pick up for healthcare services because of pent-up demand for capital, especially if the market improves, observers say. The fact that Community Health's stock price has increased about 115% since its IPO in June 2000 might bode well for other hospital deals.
Indianapolis-based Anthem, a Blue Cross and Blue Shield company, is preparing for a public offering later in the year. Also in registration for IPOs are Iasis Healthcare Corp., a hospital operator based in Franklin, Tenn., and Select Medical Corp., a Mechanicsburg, Pa.-based long-term, acute-care provider. Another hopeful is United Surgical Partners International, a Dallas-based company that owns interests in surgery centers and hospitals in the U.S., the United Kingdom and Spain.
On the secondary offering front, two spinoffs of HCA-The Healthcare Co., Dallas-based Triad Hospitals and Brentwood, Tenn.-based LifePoint Hospitals, will be eligible to conduct public offerings in May, following a 48-month prohibition under Internal Revenue Service regulations. LifePoint has already filed with the Securities and Exchange Commission to issue 3.3 million shares of common stock worth about $121 million (Feb. 19, p. 6). Triad is also likely to tap the market soon, says Rob Mains, a research analyst in Advest's Saratoga Springs, N.Y., offices.
RehabCare Group, a physical rehabilitation program management and staffing firm based in St. Louis, also has registered for a secondary offering.
Marquee names such as Blue Cross and Blue Shield will always be able to generate investor excitement, Kahn says. But others might have to wait for more-favorable market conditions, he adds.
Internet start-ups, which have been hit hard by a slump in technology stocks, are likely to stick with private financing a while longer, he says. One example is Medcenterdirect.com, an Atlanta-based online medical supplier, which withdrew its planned $131 million IPO on Feb. 15; executives said they are waiting for a better market opportunity.