Last week marked the end of the greatest amount of biotech activity across a two-week stretch in over a decade (14 pricings from 1/29 to 2/11). However, without any superstar performers like January’s Dicerna (DRNA; up 160%) or Ultragenyx (RARE; 110%), last week’s biotechs averaged only a 5% return. Non-biotechs included, last week’s offerings had the smallest deal sizes and market caps on average so far this year ($76 million and $313 million respectively). While Sundance Energy (SNDE) is the only IPO on the calendar for this week, an unusually high number of initial filings introduced some highly anticipated PE-backed companies and indicated that technology could be the next hot IPO sector.
Six health care IPOs and overall weak returns
The week’s total returns averaged 2% and brought total YTD IPO gains down to 20% from 25%. As we reported Thursday, IBP continued a pattern of housing companies trading up after slashing their offering prices. WL Ross-backed Talmer Bancorp was the third financial IPO of the year after Ladder (LADR) and Santander (SC), and it edged the previous two with a mediocre 7% return. Amedica (AMDA), a medical device company that creates enhanced spine, hip and knee replacements using silicon nitride, had the largest discount of the year (priced 48% below the midpoint), and has fallen another 1%. A maker of battery-powered portable oxygen concentrators, Inogen priced 6% below its midpoint and then dropped 5% on its first day of trading. And despite billing itself as a deuterium-enhancement biotech like Auspex (ASPX; up 99%), Concert’s (CNCE) debut fell on deaf ears; the stock has traded up only 1%. Investors may have had their fill of biotechs, though Flexion Therapeutics (FLXN), which makes sustained-release pain treatments, performed at the front of the biotech pack with a decent 16% total return.
| IPO pricings (week of February 10, 2014) | ||||
| Company (Ticker) | Business | Deal Size ($mm) | IPO Price vs. Midpoint | Return as of 2/14 |
| Installed Building Products (IBP) | US residential insulation installer | $82 | -27% | 18% |
| Flexion Therapeutics (FLXN) | Slow-release osteoarthritis pain therapy | $65 | 0% | 16% |
| Talmer Bancorp (TLMR) | WL Ross-backed Midwest regional bank | $202 | -4% | 7% |
| Concert Pharmaceuticals (CNCE) | Deuterium enhanced drugs | $84 | 8% | 1% |
| NephroGenex (NRX) | Treatments for diabetic nephropathy | $37 | -8% | -1% |
| Amedica (AMDA) | Enhanced spine, hip and knee replacements | $20 | -48% | -1% |
| Inogen (INGN) | Portable oxygen concentrators | $71 | -6% | -5% |
| Eagle Pharmaceuticals (EGRX) | Enhanced injectable versions of drugs | $50 | 0% | -15% |
Two small health care companies launch
Last week continued a downward trend of launches on the calendar, down to just 2 from 11, 6 and 4 during the previous three weeks. Lumenis (LMNS) is expected to price the week of February 24 and sells laser-based medical systems used in surgical, ophthalmic and aesthetic procedures. It is scheduled to be the first Israel-based US IPO since November, and the first in a string of four Israeli health care companies that were added to the pipeline this year. Recro Pharma (REPH), which has not disclosed a pricing date, trails an unusually high number of pain-focused biotechs this year, which have averaged 9% gains.
| IPOs setting terms (week of February 10, 2014) | |||
| Company (Ticker) | Business | Deal Size ($mm) | LTM Sales ($mm) |
| Lumenis (LMNS) | Laser-based systems used in medical procedures | $100 | $265 |
| Recro Pharma (REPH) | Non-opioid therapeutics for pain treatment | $28 | $0 |
Several SaaS filers and two large PE-backed firms
As biotech activity slows, technology IPOs look poised to race ahead. Last week's five technology filers, all of them SaaS-related, raised the number of technology firms in the pipeline that have filed in the past 90 days from 9 to 14. Health care companies are still ahead with 16 in the 90-day pipeline, and together the two sectors represent 60% of filers. By far the largest deal added last week was PQ Holdings (PQH), which expects to raise $450 million. The silica-based inorganic chemical producer was bought in 2007 for $1.5 billion by the Carlyle Group, which reduced its stake to 60% after PQ's merger with INEOS Silicas in 2008. La Quinta (LAQ.RC), a budget hotel chain that we expect to raise up to $250 million, is the other new PE-backed filer. Blackstone bought the company in 2006 for $3.4 billion, and its IPO would represent the third major Blackstone-backed hotel IPO recently, after those of Extended Stay (STAY) in November and Hilton (HLT) in December. Both Extended Stay and Hilton will disclose year-end financial results next week, which could impact the timing of La Quinta's debut.
| New IPO filers (week of February 10, 2014) | |||
| Company (Ticker) | Business | Deal Size ($mm) | LTM Sales ($mm) |
| PQ Holdings (PQH) | Carlyle-backed producer of silica-based chemicals | $450 | $1,089 |
| 21st Century Oncology Holdings (CONC.RC) | Largest integrated cancer treatment network | $300 | $702 |
| La Quinta Inns & Suites (LAQ.RC) | Blackstone-backed US budget hotel operator | $250* | $861 |
| Q2 Holdings (QTWO) | Cloud-based virtual banking for regional institutions | $138 | $53 |
| Stalwart Tankers (STST) | Acquire and operate mid-size chemical tankers | $100 | $24 |
| Castlight Health (CSLT) | Software used to compare health care costs | $100 | $13 |
| MediWound (MDWD) | Treatments for severe burns and chronic wounds | $86 | $0 |
| Aerohive Networks (HIVE) | Cloud-enabled Wi-Fi and routing products | $75 | $98 |
| Amber Road (AMBR) | Cloud-based global trade management software | $75 | $53 |
| Akebia Therapeutics (AKBA) | Treatments for anemia and kidney disease | $75 | $0 |
| Rimini Street (RMNI) | Independent enterprise software support | $60 | $55 |
IPO market snapshot
So far this year, the Renaissance IPO ETF, a basket of newly public companies that trades under the symbol IPO, has gained 4%. The 35 IPOs in 2014 have raised $6.8 billion and produced an average return of 20% from the IPO price. There have been 54 IPOs in the past 90 days, with total proceeds of $13.1 billion and an average return of 34% from the IPO price, and a post-IPO return of 11%, as measured by the Renaissance IPO ETF. The active IPO pipeline includes 98 companies looking to raise a total of $25.4 billion.
