US IPO Recap: Wave goodbye to the biotech wave as tech prepares to take over


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
*Renaissance Capital estimate

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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: News Headlines , IPOs

Referenced Stocks: SNDE , LADR , SC , AMDA , CNCE

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