Health Care IPOs

The healthcare sector represents a key pillar of the IPO market, largely due to the amount of venture funding that pours into the development of new drug candidates, medical devices, and diagnostics and screening tools. Biotech investing is a high-risk endeavor, due to the fact that so many drug candidates fail to reach FDA approval. Investors often face one of two outcomes: either the drug is approved and the stock does well, or it is rejected and the stock plummets.

With that backdrop, prospective biotech investors examine the clinical results to date, the phase of ongoing clinical trials, the amount of private funding from reputable investors, and management's experience. Valuing a biotech or device company is more art than science, and investors often compare an IPO to the market cap of similar development-stage companies or an estimate of peak sales for a potential new drug. In addition to riskier early-stage companies, the healthcare sector also features defensive stocks that provide necessary services regardless of the economic environment, including profitable hospitals, pharmaceuticals, and healthcare research, manufacturing, and service providers.