Five companies had below-average returns and brought the number 2015 IPOs up to 22, a 39% decline from this time last year...
IPO highlights during the week of February 9, 2015
• 5 of 12 IPOs got done; 2nd week in a row where less than half of possible deals priced
• Even as the IPO Index - tracked by the IPO ETF - reached an all-time high
• The year's largest IPO by market cap: Inovalon raised $600M at a $4B valuation
• The worst first-day performance for a biotech since 2002
• The IPO market will slow next week due to Washington's Birthday
Big data produces a small return after high initial demand
Inovalon (INOV), which provides a health data platform to improve the quality and efficiency of health care providers, is the year's largest company to IPO by market cap ($4 billion at the offer price). If an IPO prices at least 20% above the midpoint, chances are it will finish its first day above the offer price (97% do, and they average +59%). Inovalon boasts profitability, high growth, a large market and impressive customers but the company ended its first day flat after pricing at a 20% premium. IPO investors appear more discerning now, having been burned this year by negative returns after the first day (-1.4% average).
Testing the risk of hereditary cancer rewards investors
Invitae (NVTA) was the week's best-performing IPO, though it gained just 11% by Friday close. In addition to its high growth forecasts and excitement around consumer-focused genetic companies (23andme), CEO Randy Scott's success at Genomic Health (GHDX) likely helped sell the deal. The market opportunity could be huge if genetic sequencing become standard at birth (and saved to Inovalon's database).
A Greek tragedy: Biotech Bellerophon down 25%, REIT Ajax down 2%
Bellerophon (BLPH), named after the pegasus-riding chimera-slaying Greek hero, priced 20% below the midpoint and fell 25% on Friday, giving it the worst first-day return for a biotech since 2002. It is the seventh biotech IPO of the year; only one (ONCE; +98%) trades above its offer price. In the past five years, 12 IPOs have dropped more than 20% on the first day; 83% continued to fall thereafter.
Great Ajax (AJX), also named after a Greek hero and a mountain in Colorado, is a REIT that acquires distressed mortgages at major discounts. Managed by Aspen Capital, the IPO priced below the range at about 1x price to book and went downhill from there, ending the week with a -2% return.
Sol-Wind and AltheaDx postpone
Five IPOs have officially postponed in 2015, compared with none by this time last year. Sol-Wind Renewable Power LP (SLWD) planned to go public with an above-average yield (6.5%) but its unique financing structure and hedge fund parent may have turned off investors. AltheaDx (IDGX), which makes genetic tests that predict adverse drug reactions, was still early stage, had no patents to ward off competitors and could face future pricing pressure on its tests.
Holdovers remain on hold
Four IPOs are looking to price on a day-to-day basis. These health care deals may have accelerated their offerings based on 2014's gains, but there appears to be a momentary valuation disconnect between the public markets and private funding rounds. Three of these were on last week's IPO calendar, including osteoarthritis pain biotech Carbylan Therapeutics (CBYL), glaucoma biotech Inotek Pharmaceuticals (ITEK) and diagnostic catheter maker Infraredx (REDX). AutoGenomics (AGMX), which makes genetic testing systems, has been trying to go public since 2008, but will wait one more week.
Poor performance and postponements: biotech did a belly flop, diagnostic tests got a D, yield keeled and Inovalon demand disappeared
| IPO pricings (week of February 9, 2015) | |||||
| Company (Ticker) | Business | Deal Size ($mm) | IPO Price vs. Midpoint | First-Day Pop | Return as of 2/13 |
| Invitae (NVTA) | Genetic tests for drug risks | $102 | 14% | 7% | 11% |
| Avenue Financial (AVNU) | Nashville bank | $28 | -8% | 8% | 7% |
| Inovalon (INOV) | Healthcare data analytics | $600 | 20% | 0% | 7% |
| Great Ajax (AJX) | Mortgage REIT | $71 | -11% | -2% | -2% |
| Bellerophon Therapeutics (BLPH) | Biotech: pulmonary and cardiac disease | $60 | -20% | -25% | -25% |
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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, has reached an all-time high. Renaissance Capital's IPO ETF (NYSE: IPO) tracks the index, and top ETF holdings include Zoetis (ZTS), Twitter (TWTR), Alibaba (BABA), Hilton (HLT) and Ally Financial (ALLY). To find more about purchasing shares of the ETF from your broker, visit our new IPO investing page.
