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Annexon Biosciences is a clinical-stage biopharmaceutical company that focuses on developing drugs to treat autoimmune disorders and complement-mediated neurodegenerative diseases. The company’s headquarters are located in South San Francisco, California. Annexon went public about a year ago, on July 24, 2020. Since then, its stock price has fluctuated with relative stability. Initial public offerings are important times in the lives of companies. “After raising small amounts of private capital from a very limited number of investors, when a company goes public its shares become available for every stockholder on the market” (Kecskės, 2019, p. 222). Stock prices will naturally move up and down once the general public can trade it. This paper examines the history of Annexon’s stock price and discusses the accuracy of the initial valuation.
Estimation Before IPO
Before going public, Annexon had approximately 112,000,000 shares of outstanding convertible preferred stock outstanding (Annex, 2021). Since the net carrying amount of this stock was about $143 million (Annex, 2021), each share was valued at approximately $1.28. However, this number is not indicative of fair value on the stock market; it is simply a way to indicate value. The true, market value of a company’s stock can only be determined once it is trading on a public exchange. Once this is the case, investors can see how the market values the stock.
Price on and Around IPO Date
Shortly before the IPO date of July 24, 2020, it was announced Annexon stock would be priced at $14 to $16 per share, with 10 million shares to be sold (Linnane, 2020). However, only days later the price was changed to $15 to $16 per share, with 12.5 million shares to be sold (Linnane, 2020). In the end, Annexon shares were sold at $17 each during the IPO (Annexon, 2021). The stock closed at $17.76 per share on the IPO date and was up to $18.23 per share one week later (Nasdaq, n. d.). One month after the IPO date, the company’s stock closed at $23.86, up 40.4% from the IPO price of $17 (Nasdaq, n. d.).
On July 20, 2021, Annexon’s stock closed at $23.33 (Nasdaq, n. d.). This is very close to where it was eleven months ago. In its short time as a public company, Annexon attained a maximum stock price of about $35.00 in March 2021 (Yahoo Finance, n. d.). This is a more than 100% increase over the IPO price of $17.00 in only eight months. As the company continues to grow and receive regulatory approval for its products, the stock price should increase over time.
Accuracy of Initial Estimation
Overall, Annexon’s stock has closed above the IPO value of $17.00 per share, usually in the mid-twenties (Yahoo Finance, n. d.). So, the initial value was too low. This is understandable, as underwriters do not have perfect information on how the market will react to IPOs. However, it does illustrate initial values do not necessarily equate to market values. Investors and managers alike should keep this in mind as they make investment and financing decisions. Part of the reason this value was off from the market value is because the stock was not trading on a public exchange. Therefore, its value could not be fairly measured.
As shown in this paper, Annexon’s stock price has experienced fluctuations, a natural occurrence for all publicly traded equities. However, it has continually remained above the IPO price. So, the IPO valuation was lower than it could have been. Also, the basic valuation of the preferred stock before the IPO resulted in a value far below both the current and IPO prices. One sources notes, “A premise in documenting the underpricing phenomenon is that the first-day market price is the “fair value” so that the offer price chosen by the issuers and their investment bankers is “too low” relative to the first-day price (Shu et al., 2012, p. 147). Again, it is difficult to measure the true value of a stock when it cannot be traded on a public stock exchange. Only certain parties can purchase the stock of a private company, thus limiting its value.
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