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US IPO Recap: Wave goodbye to the biotech wave as tech prepares to takes 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, 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 Nasdaq, Inc.


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

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