Breaking news: Two-thirds of this week's IPOs broke issue.
Last week, we noted that the recent stretch of strong first-day pops (+26%) with weak follow-through performance (-3%) was likely unsustainable. This week, IPOs averaged a loss of 1% on the first day with a total return of -5%. Ten were scheduled, but just six companies went public, half of which raised less than $40 million. The other three included two billionaire-backed biotechs and one discounted solar power producer. These deals struggled even as the Nasdaq Composite and the S&P 500 gained about 1%.
• NantKwest went public at the largest valuation for a development-stage biotech
• Alzheimer's biotech vTv Therapeutics had the year's worst first-day return
• Looming interest rate hikes pressure yield IPOs and large debt holders
• High-growth cash companies may still work (Planet Fitness PLNT and Amplify BETR next week)
NantKwest (NK) went public at a diluted valuation of $2.6 billion, making it the largest clinical-stage biotech ever to go public. The company priced an upsized offering above its range and gained 39% on the first day, but ended the week up 22%. Large biotechs like NantKwest have showed strong average first-day returns, but a failure to follow through after the initial hype. Backed by billionaire Patrick Soon-Shiong, It may eventually unlock the cure for cancer, but will need to start some clinical trials first to earn its massive valuation.
Alzheimer's biotech has year's worst debut, then trades down further
Backed by billionaire Ron Perelman, vTv Therapeutics (VTVT) priced at the low end of the range and then fell 27% on its debut, giving it the worst first-day return for a 2015 IPO. The last biotech to target Alzheimer's disease, Axovant Sciences (AXON), spiked 99% on its first day but now trades 6% below its offer price.
Could yield leave the field?
TerraForm Global (GLBL) is the third yield-focused IPO in a row to slash its valuation by 25%, following CNX Coal Resources (CNXC) and Green Plains Partners LP (GPP). It raised $675 million instead of $1.1 billion as planned - the year's largest capital cut in absolute dollars - but was still the sixth-largest IPO of 2015. The year's 10 dividend-producing IPOs in the energy sector now average a loss of 7%. TerraForm Global fell 7% on its debut, giving it an annual yield of 7.9%. Parent SunEdison (NYSE: SUNE) has dropped 25% in the past two weeks and recent solar IPO 8point3 (CAFD) is down 23%.
Three microcap IPOs list on the Nasdaq
Aqua Metals (AQMS), which is in the early stages of developing its lead battery recycling plant, raised $33 million at a market cap of $71 million and then traded up 7%. EyeGate Pharmaceuticals (EYEG), which had been listed on the OTCQB, saw its thinly-traded stock run up 400% in about three weeks in July following a series of fortunate events (Valeant agreement, beginning a trial). However, EyeGate fell 16% on its first day - the year's 8th worst debut. Xcel Brands (XELB) - also listed on the OTC markets - priced below the range at a market cap of $172 million, then fell 2%. The company licenses several fashion labels, including Issac Mizrahi and Judith Ripka.
Two postpone, two push back
Last week, a REIT offering (ETRE REIT, ESSF) and a small biotech (BioCardia BCDA) postponed IPOs. This week, a REIT offering (RiverBanc Multifamily Investors, RMI) and a small biotech (Intec Pharma, NTEC) pushed back scheduled IPOs to next week. Two offerings also postponed indefinitely: outsourced broadcast production company NEP Group (NEPG) and containership operator Poseidon Containers Holdings (PCON). Without rapid growth, companies with large debt burdens (especially floating rate) could investor face pushback.
| 6 IPOs during the week of July 27, 2015 | |||||
| Company (Ticker) | Business | Deal size ($mm) | IPO price vs. midpoint | 1st-day pop | Return at 7/24 |
| NantKwest (NK) | Biotech: cancer immunotherapy | $207 | 16% | 39% | 22% |
| Aqua Metals (AQMS) | Lead battery recycling | $33 | 0% | 7% | 7% |
| Xcel Brands (XELB) | Licenses Isaac Mizrahi brand | $16 | -14% | -2% | -2% |
| TerraForm Global (GLBL) | Emerging markets solar yieldco | $675 | -25% | -7% | -7% |
| EyeGate Pharmaceutials (EYEG) | Biotech: Eye drop drug/device | $10 | 0% | -16% | -16% |
| vTv Therapeutics (VTVT) | Biotech: Alzheimer's disease | $117 | -6% | -27% | -33% |
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IPO Market Snapshot
The Renaissance IPO Indices are market cap weighted baskets of newly public companies. The Renaissance IPO Index has traded up 5.2% year-to-date, compared to 2.2% for the S&P 500. Renaissance Capital's IPO ETF (NYSE: IPO) tracks the index, and top ETF holdings include Alibaba (BABA), Hilton Worldwide (HLT) and Twitter (TWTR). The Renaissance International IPO Index has traded up over 3.9% year-to-date, compared to less than 2.5% for the ACWX. Renaissance Capital’s International IPO ETF (NYSE: IPOS) tracks the index, and top ETF Holdings include Altice and Recruit Holdings. To find out if this is the best ETF for you, visit our IPO Investing page.
