Ten IPOs raised $1.2 billion in a week dominated by eight health care IPOs and distinguished by two deals that gained over 100% on the first day - fast casual burger chain Shake Shack and gene therapy biotech Spark Therapeutics. There were more health care IPOs this past week than any week in 2014, a year that had over 100 from the sector. With 14 IPOs to date, January 2015 fell short of last year's 17 deals, but remained higher than the 10-year historical average of 9 during the first month. On next week's IPO calendar: 7 more health care IPOs and 2 yield deals.
Burger and biotech up over 100%: Shack attack and the ONCE in a lifetime IPO
Shake Shack (SHAK) and Spark Therapeutics (ONCE) had enormous first-day gains and pricing premiums. Only two IPOs last year saw enough demand to price 40% above the proposed midpoint (CSLT; -45% from IPO and JUNO; +78%). The last time two IPOs both shot up 100%+ on the same day was in July 2000, and the last time it happened in the same week was from the previous two companies that offered a fast casual burger (HABT) and targeted blindness (EYES). Yet if history is any indication, IPO investors should be cautious about buying after a 100% pop.
Shake Shack targeted a diluted market cap of $525 million, went public at a valuation of about $750, and finished its first day worth $1.7 billion. Danny Meyer's beloved New York brand has achieved superior unit economics in Manhattan and believes the US can support 15 times the current footprint of 36 restaurants. Since 2013, the five other fast-casual IPOs (HABT, LOCO, ZOES, PBPB, NDLS) have averaged 95% on the first-day. Consumer IPOs represented a strong sector in 2014 (now averaging 34%), and Shake Shack's debut should encourage other high-growth IPOs from well-known brands.
Spark Therapeutics ended its first day with a diluted market cap of $1.2 billion, the most recent addition to an increasing number billion-dollar biotechs to IPO. Validated by a Pfizer partnership and impressive backers (T. Rowe Price, Wellington, Sofinnova) Spark's lead candidate intends to cure inherited retinal dystrophies that cause blindness with a single treatment. Despite the limited market opportunity of its the drug, it expects Phase 3 trials data by end of 2015, meaning Spark could offer the first FDA-approved gene therapy.
Distributing electricity and cash: REIT IPO sparks interest
InfraREIT (HIFR) raised $460 million after pricing above the range to make it the week's largest offering. The Texas-based owner of electric transmission and distribution assets benefits from long-term contracts, offered a relatively attractive yield and plans to grow cash distributions.
Three medical products have varied returns
Entellus Medical (ENTL) was the week's third-best performer, up 27% on Friday. The company sells a treatment that opens obstructed sinus pathways, and likely benefited from the performance of close peer Intersect ENT (XENT). Implanted lens maker Presbia (LENS) priced below the range and fell 19% on its debut; only 8 of last year's IPOs, or 3% of total deal flow, had a worse first day. It continued to drop on Friday and finished the week down 35% from the offer price. Coronary catheter maker Avinger (AVGR) priced at the midpoint and traded up 4%.
Four biotechs with unremarkable returns
Aside from Spark, the week's other four biotechs had mostly unremarkable returns. Ascendis Pharma (ASND), which offers long-acting treatments for growth hormone deficiency, gained 10%. Osteoporosis biotech Zosano Pharma (ZSAN), a peer to 2014's best-performing IPO Radius Health (RDUS), priced at the midpoint of original July 2014 range and traded flat. Even with NEA and JAFCO behind it, cancer biotech TRACON Pharmaceuticals (TCON) priced below the range and dropped below the offer price. Muscle spasm biotech Flex Pharma had the rare (<1% of 2014 IPOs) distinction of pricing above the range only to break issue on the first day.
Two IPOs delayed until next week
Two companies that had been scheduled to go public pushed back their IPOs to the week of February 2 - catheter maker Infraredx (REDX) and eye inflammation biotech Eyegate Pharmaceuticals (EYEG).
| IPO pricings (week of January 26, 2015) | |||||
| Company (Ticker) | Business | Deal Size ($mm) | IPO Price vs. Midpoint | First-Day Pop | Return as of 1/30 |
| Shake Shack (SHAK) | Fast casual burger chain | $105 | 40% | 119% | 119% |
| Spark Therapeutics (ONCE) |
Biotech: gene therapy for retinal disorders | $161 | 44% | 117% | 117% |
| Entellus Medical (ENTL) | Sinus pathway treatment | $78 | 6% | 29% | 27% |
| InfraREIT (HIFR) | Texas electric asset REIT | $460 | 15% | 16% | 16% |
| Ascendis Pharma (ASND) | Growth hormone biotech | $108 | 6% | 5% | 10% |
| Avinger (AVGR) | Catheter for arterial disease | $65 | 0% | 4% | 4% |
| Zosano Pharma (ZSAN) | Biotech: osteoporosis | $50 | 0% | 0% | 1% |
| TRACON Pharmaceuticals (TCON) | Biotech: cancers | $36 | -23% | -6% | -6% |
| Flex Pharma (FLKS) | Biotech: muscle spasms | $86 | 23% | -7% | -8% |
| Presbia (LENS) | Implanted lenses | $42 | -17% | -19% | -35% |
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IPO market snapshot
The Renaissance IPO Index, a market cap weighted basket of newly public companies that is designed to represent the US IPO market, gained 7.7% in 2014 and has traded flat in the past 90 days. Renaissance Capital's IPO ETF (NYSE: IPO) tracks the index, and its top holdings include Zoetis (ZTS), Alibaba (BABA), Twitter (TWTR), Hilton (HLT) and Ally Financial (ALLY).
