Hartford Business Journal

18 HARTFORDBUSINESS.COM | AUGUST 7, 2023 Connecticut Innovations CEO Matt McCooe said the "IPO market is basically closed for the moment." HBJ PHOTO | STEVE LASCHEVER Capital Crunch Lack of IPO activity slows growth of CT's bioscience, tech industries By Harriet Jones Hartford Business Journal Contributor A tiny flurry of Connecticut IPO activity in June of this year — as Branford-based biotech Azitra raised $7.5 million, and Westport's Intensity Therapeutics sold shares worth $16 million — only served to highlight how quiet the markets have been so far in 2023. Last year saw a similar drought of state bioscience and tech company IPOs, mirroring a nationwide trend. In fact, Azitra and Intensity Thera- peutics are the only two Connecticut companies to go public since December 2021, according to data provided by Crunchbase. Across the U.S., there were 52 IPOs during the first half of this year that raised $8.9 billion, well below the more than 200 IPOs that took place during that same time period in 2021, according to Stamford-based Renaissance Capital. "The IPO market is basically closed for the moment," said Matt McCooe, CEO of Connecticut Innovations, the state's quasi-public venture capital investor. He said a number of factors have played into the lackluster IPO activity, including the lengthy bear market and high interest rates. It's also a reac- tion to the frothy pandemic market of 2021, which was dominated by the financial innovation of achieving a speedy IPO through a so-called SPAC, or special purpose acquisi- tion company, which he dubbed "an unmitigated disaster." "That was a complete and utter wreckage for the public market inves- tors who invested in those deals," he said. "And the truth is, those compa- nies shouldn't have been going public anyway. They just weren't ready." Several Connecticut companies that went public via SPAC merger in 2021 have seen their stock prices and market valuations decline signifi- cantly since that time. That includes Stamford-based genetic testing company Sema4, which changed its name in January to GeneDx after a tumultuous year-plus, during which it laid off hundreds of workers and closed its Connecticut lab operations. Overall, nine Connecticut-head- quartered companies completed IPOs in 2021, according to Crunchbase. 'Under siege' For those companies that went public prior to the market downturn, current conditions are also challenging. "The data for the last three or four years for bioscience IPOs — the vast majority of those, two, three, four years out — they're underwater," McCooe said. He sees tech and software compa- nies doing better, but describes bioscience firms as "under siege." New Haven-based Arvinas under- took its IPO in 2018. It subsequently achieved a strategic partnership with Pfizer, and currently has a number of cancer drugs in clinical trials. "It was, quite frankly, a good time to go public," said Arvinas Chief Financial Officer Sean Cassidy. Interest rates remained low and capital cheap through 2021, but as the Fed raised rates last year in response to inflation, market conditions changed drastically. "Any long-duration assets where there's a very long development time before you actually have revenue and profits — when interest rates go up, discount rates go up, which means valuations go down," said Cassidy. Arvinas, which saw its stock price reach past $100 in 2021, was trading at around $22 in late July, which was still above its $16 public offering price. Less risky bets The dearth of readily avail- able capital has taken its toll in Connecticut, with companies cutting head count and scaling back programs. "Emerging companies are really trying to focus on stretching cash and minimizing expenses," said Frank Milone, co-founding partner of Glastonbury-based accounting and advisory firm FML. "(Companies are) finding ways to focus on really critical path-related activ- ities to get them to as many of the strategic goals or milestones that they're really looking to accomplish." Arvinas' Cassidy said in biotech, the scarcity of capital has also driven more M&A and strategic partnership activity. "The typical kind of decision-making process is, 'can I go out and get a partnership?'" he said. "And that usually brings in capital or reduces future costs. That's an obvious lever to pull in difficult times." Meanwhile, private money that is still in play tends to go to short- er-horizon, less risky bets. "Those are real predictable, cash- flow generating companies that are much easier to measure in an uncertain interest rate environment," said Cassidy. "So obviously, there has been a real IPO drought, not only in this industry, but in many industries and across the country." Josh Geballe, senior associate CT IPOS These Connecticut companies have gone public since 2020. Azitra (2023) Intensity Therapeutics (2023) Hyperfine (2021) Altus Power (2021) IsoPlexis (2021) Rallybio (2021) Sema4 (2021) GXO Logistics (2021) Ikonisys (2021) Quantum SI (2021) Isos Acquisition Corp. (2021) Datto (2020) Source: Crunchbase Frank Milone Josh Geballe Sean Cassidy

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