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SPACs drag on health tech stocks

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Digital health public market performance
Data: RockHealth.org; Chart: Baidi Wang/Axios

Health tech stocks are hemorrhaging, according to Rock Health, which found that publicly traded digital health securities plummeted 38% between the start of Q3'21 and the end of Q1'22.

Why it matters: It's no secret that the public markets have been volatile, but when compared with the S&P 500 — which dropped just 5% over the same period — this tumble clearly stands out.

Between the (downward] lines: Several factors are contributing to health tech's poor public performance — namely SPACs.

  • On average, the stock price of the 31 digital health companies that went public after 2020 dropped 55% from the start of Q3'21 to the end of Q1'22.
  • Of those companies, more than half (17) came public via SPAC, and their shares over the same period retreated an average of 57%.

Flashback: Health companies that went public before 2020 saw shares fall just 17% on average over the same period, relatively mirroring the performance of the Nasdaq Biotech Index, according to Rock Health.

Be smart: It's not as if SPACs outside the health tech sector performed swimmingly, either.

  • According to SPAC Insider, fintech companies that SPACked in 2021 lost an average of 40% in value since the day of their first trade.

What they're saying: "In an optimistic market, SPAC deals contribute to — or perhaps are a reflection of — investor excitement, but in times of cautious trading, wariness pervades," Rock Health researchers Adriana Krasniansky and Pavan Shah write.

  • As one industry banker put it, the market bounces "back and forth between fear and greed," and we're still in that period of fear.

Driving the news: The SEC recently proposed a rule to allow investors to sue SPACs for misleading projections.

What's next: A wave of SPAC IPO terminations prior to listing and cancellations of announced mergers, most likely.

  • "After the SPAC euphoria of 2020 and early 2021, the market is continuing its reverse trip to Earth," Axios' Kia Kokalitcheva writes.
  • Meanwhile, industry bankers predict the regular-way IPO window will start to reopen this summer. (Recall Komodo.)
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