Pharma IPOs Are Good Medicine

NEW YORK (TheStreet -- Health care stocks may be making a full recovery thanks to the Supreme Court's recent ruling to upholding the Obamacare mandate.

For one, the court's decision could lead an increase in M&A deals in the second half of 2012. Uprooted legacy business models have opened up new opportunities for both health care and pharmaceutical sector, according to a recent survey by PricewaterhouseCooper.

In the pharma sector, PwC believes the big names will right size their portfolios with divestitures by selling off assets that are no longer core revenue generators or in key markets. The good news for some companies is that capital is likely to used for tuck-in acquisitions or to beef up their emerging markets agendas. Customers are asking firms to lay out all strategic options for them, whether it is finding a buyer, divesting a business or going public, says PwC's Tim Hartnett.

The IPO market could benefit as well. So far, new offerings from health care companies have been few and far between in 2012. According to Renaissance Capital, only 6 deals have been done year-to-date in the sector with total proceeds of $400 million. The average first day of return has been 2.8%, but the average total return is a healthy 37.1%. Not too shabby.

The deals tend to be small pharmaceutical companies looking for public money in order to complete their clinical trials. Cancer drugs just don't seem to wow the market like they once did. As a result, many of these offerings tend to drop their prices right before they hit the market, making them even better deals.

Supernus Pharmaceuticals (SUPN) originally planned to price shares in the range of $12-$14, but ended up pricing in April at $5. Shares of the company, which makes epilepsy and ADHD drugs, closed Friday at $13.26, or a return of 165%. Supernus recently announced it's received a tentative letter of approval from the Food and Drug Administration for Trokendi XR, a proposed extended-release treatment for epilepsy, and expects to launch its first drug in 2013.

NewLinks Genetics (NLNK) makes cancer drugs and had originally planned to price at $11, but ended up debuting at $7. The stock finished Friday at $12.70, up 81.4%.

Another example is Clovis Oncology (CLVS), which priced at the bottom of its planned range of $13-$15.00. The stock finished Friday at $19.64, up 51%. So, it does seem that with the drug company IPOs flying under the radar, investors are getting well-priced stocks.

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