A 2019 Healthcare Market Recap and 2020 Forecast by Mizuho Americas

Mariano Gaut
Mariano Gaut Managing Director, Equity Capital Markets
February 5, 2020

Healthcare capital markets were in peak form in 2019, after starting the year on a note of uncertainty. Biotech and healthcare stocks soared, led by a crop of IPOs whose performance beat all the market averages. Healthcare companies raised nearly $52 billion in new equity capital for the second year in a row.

Can the favorable momentum continue? The short answer is yes. Here's a rundown of what happened last year, along with our thoughts on what to expect in 2020.

2019 Trends and Highlights: A Strong Year for Healthcare Equity Markets

Healthcare shares soared in 2019, with the NASDAQ Biotechnology Index (NBI) and the XBI S&P Biotech ETF advancing 24.4% and 32.6%, respectively, generally in line with the S&P. At the same time, volatility for the broad market (VIX) and NBI index fell by about half to 12.5, a historic low. Among NBI companies, performance varied greatly by market cap: Those with market caps greater than $10 billion rose 11% on average, while the average gain for $5 billion to $10 billion companies was 25%. In general, the lower the market cap, the higher the gain.

Healthcare equity issuance was robust, bringing in $51.9 billion. the same as in 2018 despite a 9% decline in number of transactions. Of last year’s 282 equity deals, 24% were IPOs that raised $13.8 billion, 61% were follow-on stock issues ($25.5 billion), 10% were convertibles ($8.9 billion) and 5% were block trades ($3.7 billion).

Source: Dealogic, Bloomberg

Healthcare IPOs outperformed all equity market indices in 2019, climbing an average of 46.4%. Two-thirds of last year’s IPOs continue to trade above their issue prices. IPO investors wisely focused on high-value therapeutics that improve care standards and gave less weight to drug pricing and political issues.

The IPO market was open to life-sciences companies across all clinical stages. Early-stage life-sciences companies with promising therapies in development or in Phase 1 trials represented 33% of IPO activity, in line with 2018’s 32%. However, in a reversal of 2018’s pattern, late-stage companies had a higher IPO market share (40%) than intermediate-stage companies (27%) as investors displayed discipline and caution. Parsing IPO activity by therapeutic area, investors favored companies focused on genetically identified diseases and particular cancers over companies that specialize in immuno-oncology, gene editing and gene therapies. Neurological and central nervous system drug developers continued to draw strong investor backing.

Healthcare convertible stock deals raised $8.9 billion in a year when overall convertible issuance reached $55 billion, a post-crisis high.  Healthcare companies were the second-most-active issuers of converts, trailing only technology companies.

Looking Ahead to 2020: Four Predictions for Healthcare Capital Markets 

The healthcare sector enters the year riding a wave of improved fundamentals, and we expect the momentum to carry over into 2020. Here’s our forecast:

  1. Last year’s exceptional secondary market performance amid low volatility sets an optimal backdrop for another strong year for the healthcare capital markets.


  2. Robust demand will continue for IPOs of life-science companies with validated research approaches and encouraging trial outcomes.


  3. Stock price increases after news of positive clinical results grew more pronounced in 2019, often followed by sustained improvement, as long-only investors crowded into shares. We expect that trend to continue. 


  4. Investors remain hungry for new convertible paper, auguring another good year for companies to tap the convertibles market at very attractive prices.
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