Second Sight Medical (EYES) became the year's sixth IPO to double on Wednesday, and its 122% gain gives it the #3 spot for highest first-day pop of 2014. The last IPO to spike over 100% on its first day of trading was ReWalk Robotics (RWLK) in September. Second Sight saw high volume on its debut, trading 1.4x its float. Its 122% gain reflects the exciting opportunities of such a unique medical device, but carries inherent risks for post-IPO investors.
Supporting the pop
- First-of-its-kind for the blind: Second Sight offers a first-of-its-kind product for restoring partial vision to blind patients with Retinitis Pigmentosa.
- Massive potential for all blindness: The company is currently developing a device modification that could potentially treat all causes of blindness, and estimates that it will begin clinical trials in late 2016.
- The billionaire backer: Alfred Mann, Chairman and CEO of MannKind (NASDAQ: MNKD), is the largest shareholder. Investors could be encouraged by the persistence he showed in funding MannKind's Afrezza diabetes treatment through its approval.
- ReWalk comparisons: Investors appear to have an appetite for IPOs building the bionic being. ReWalk Robotics went public in September and trades 128% above its IPO price. The company's recently-approved exoskeleton for paraplegia had been installed in just 81 cases at the time with $1.8 million of LTM sales, putting it in a similar place commercially as Second Sight (about 90 implants; $2.4 million LTM sales).
- An IPO sweetener: If an investor holds Second Sight's stock for two years and the stock price is $9 or less, they will receive one additional share for free. That long term incentive right decreases to nothing as the stock price approaches $18 at the 2-year mark.
Risks
- Early stage commercially: Second Sight claims that it has only implanted about 90 of its Argus II units. It shows a negative gross margin on the units it does sell, and had $20 million in operating losses in the last twelve months. Most insurers do not cover the device. Retinitis Pigmentosa is an uncommon disease - the company estimates that its target market in the US is less than 25,000 and less than 42,000 in Europe.
- Jackpot potential is a long way off: Expanding the device's indication to treat all forms of blindness will require more than a new series of clinical trials. Second Sight must first develop a way to bypass stimulating the optic nerve and instead target the visual cortex of the brain.
- When sweetener turns sour: The long term incentive right applies to all shareholders who own the stock after 90 days of the IPO and is not transferrable after that point, setting up a potential selling event in February. The sweetener is triggered only if the shareholder has held the stock for two years and if the price averages less than a 100% gain, meaning an investor in March faces increasing dilution as the stock price declines.
- A long way to fall: Second Sight has the third highest first-day pop of 2014. The #1 position belongs to January IPO Dicerna Pharmaceuticals (DRNA), which now trades 34% below its offer price (-78% from first day close). Castlight Health (CSLT) is #2, and it has a 31% loss from the IPO (-72% from first day close).
- More drugs preventing blindness: Five eye disease biotechs have gone public in 2014 (AAVL, AGTC, PFNX, OCUL, EBIO) and a sixth recently filed (ITEK), as more pharmaceuticals target ways to prevent blindness.
| Second Sight is the 6th IPO of 2014 to double on day one | |||||
| Company (Ticker) | Business | IPO Date | Deal Size | First day | 11/19 Return |
| Second Sight Medical (EYES) | Device for blindness | 11/19 | $32 M | 122% | 122% |
| ReWalk Robotics (RWLK) | Device for paraplegia | 9/12 | $36 M | 113% | 125% |
| Castlight Health (CSLT) | SaaS for healthcare costs | 3/13 | $178 M | 149% | -30% |
| Varonis Systems (VRNS) | Enterprise software: unstructured data | 2/27 | $106 M | 100% | 3% |
| Ultragenyx Pharmaceuticals (RARE) | Drugs for rare genetic diseases | 1/30 | $121 M | 101% | 112% |
| Dicerna Pharmaceuticals (DRNA) | RNAi therapies for rare diseases | 1/29 | $90 M | 207% | -34% |
IPO Market snapshot
So far this year, 256 IPOs have raised about $82 billion, averaging a first-day pop of 12.9%. The Renaissance IPO Index, a market cap weighted basket of newly public companies designed to represent the US IPO market, has gained 10% year-to-date. Renaissance Capital's IPO ETF tracks the index, and its top holdings include Alibaba (BABA), Zoetis (ZTS), Twitter (TWTR), Hilton (HLT) and Workday (WDAY).
