Biotech IPOs show their resilience, yet again.
Twelve IPOs filed this week, including nine biotechs - more biotech IPO filings than any week last year. The sub-sector that powered the 2015 IPO market (35% of the 170 deals) ended last year battered down to a +3% gain, compared to +41% for biotechs at the end of 2014. Of the last 20 IPO filings, health care accounts for 65% and technology is 25% - the depressed tech sector saw notable filers Nutanix (NTNX) and SecureWorks (SCWX) in December. However, filing for an IPO is one thing - getting the deal done will be another.
The VIX Volatility Index, which has a close inverse relationship to IPO activity, closed above 25 for the first time since September. With a crash in commodities and big trouble in China's markets, the S&P 500 ended the week down 6% - the worst opening week in its history. The average IPO from 2015 now trades -11% below its offer price. Even recent IPOs from the 4Q15, which faced intense valuation pressure, saw total average returns drop to +6% from +17% last week, while their post first-day trading swung negative. Expect more pricing pressure in the beginning of 2016.
Biotech investors go for seconds
Remarkably, 14 biotechs priced secondary offerings this past week. The biotechs fell -2% on average from the offer price, after pricing -18% below where they were trading at the announcement of the offering. Their return was unimpressive, but far better than that of the Nasdaq Biotech Index, which plummeted -11% this past week. While the pre-revenue biotech sector does not experience traditional multiple contraction, IPO investors may instead seek greater discounts, with an eye on venture investors' last private round.
Down but not out: Nine biotechs file for IPOs
The flurry of biotech filings contains several IPOs that should not get lost in the crowd. Editas Medicine (EDIT) will test IPO investors' appetite for a hot biotech at an extremely early stage - human trials expected to begin in 2017. Leveraging CRISPR gene editing technology, Editas has raised over $200 million from a group of top-tier investors including Deerfield, Fidelity, Google, Polaris and Third Rock. Corvus Pharmaceuticals (CRVS), also in preclinical studies, was the largest biotech IPO filer this past week with a $115 million deal size. Backed by OrbiMed, Adams Street and Fidelity, Corvus is developing checkpoint immunotherapies for tumors, another promising space. After postponing an IPO in 2014, Syndax Pharmaceuticals (SNDX) is back with a new use for its drug candidate - checkpoint immunotherapy - along with a new $80 million funding round from top investors in August and the former CMO of AstraZeneca leading the company. After netting $65 million in a Series C in October (OrbiMed, Sofinnova, Redmile), Audentes Therapeutics (BOLD) plans to raise $86 million as it develops one-shot gene therapies for rare but fatal diseases. Backed by Polaris and Merck, Visterra (VIST) has an ambitious plan to create a universal flu vaccine that both treats and prevents all strains of the disease; its $69 million IPO could take it the rest of the way through Phase 2 trials. Pulmonary arterial hypertension biotech Reata Pharmaceuticals (RETA) is seeking $80 million as it plans a Phase 3 trial. T-cell biotech Bavarian Nordic (BAVN) filed to raise $86 million.
Three non-biotechs: Argentina bank, airport food and avoiding adverse drug events with IT
Controlled by CEO Julio Supervielle, Argentina-based bank Grupo Supervielle (SUPV.RC) filed to raise $100 million in the US less than one month after the country's currency began free-floating, weakening about 30% compared to the dollar. Founder and CEO-owned OTG EXP (OTG) plans to raise $100 million to pay down debt ($428mm; 8.5x LTM adj. EBITDA), which the company took on to rapidly expand its concession stores into new airport terminals (+42% yoy growth; $359mm LTM sales). Venture-backed Tabula Rasa HealthCare (TRHC), which offers risk management IT solutions to health care providers, filed to raise $115 million. It grew sales by 45% to $50 million during the first nine months of 2015, at a 30% gross margin.
M&A update: Medical device IPO acquisitions
High-growth medical device maker Ellipse Technologies (MGEC), on file for a $75 million IPO, announced that it would be acquired for $380 million. Another medical device maker, SurgiQuest (SRGQ.RC), officially withdrew its IPO after announcing its acquisition in November. If markets remain turbulent, more IPO filers may explore their M&A options.
Failure to launch: No IPOs added to the calendar
Even as biotechs piled into the IPO pipeline, poor market conditions likely deterred companies from joining the calendar. Only Shimmick Construction (SCCI) is scheduled for next week in a $75 million IPO.
| 12 filings during the week of January 4, 2016 | |||
| Company (Ticker) | Business Description | Deal size ($mm) | Notable Investors |
| Bavarian Nordic (BAVN) |
Biotech: Vaccines that stimulate T-cells | $86 | ATP Group |
| Audentes Therapeutics (BOLD) | Biotech: Gene therapy for muscular diseases | $86 | OrbiMed Deerfield |
| Editas Medicine (EDIT) | Biotech: Gene editing based on CRISPR | $100 | Third Rock Fidelity |
| Tabula Rasa HealthCare (TRHC) | IT solutions for health care management | $115 | Originate Ventures |
| Reata Pharmaceuticals (RETA) | Biotech: Protein-based anti-inflammation | $80 | Novo A/S |
| Syndax Pharmaceuticals (SNDX) | Biotech: Enhanced immuno-oncology | $86 | Fidelity BlackRock |
| Corvus Pharmaceuticals (CRVS) | Biotech: Immunotherapy for solid tumors | $115 | Fidelity OrbiMed |
| Spring Bank Pharmaceuticals (SBPH) | Biotech: Viral disease platform | $58 | Management |
| Visterra (VIST) | Biotech: Universal flu vaccine | $69 | Merck Polaris |
| Grupo Supervielle (SUPV.RC) | Argentina bank with $2B in assets | $100 | Management |
| OTG EXP (OTG) | Operates 220 restaurants in 10 airports | $100 | Management |
| Clearside Biomedical (CLSD) | Biotech: Diseases that cause blindness | $58 | Hatteras Ventures |
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IPO Market Snapshot
In 2015, 170 companies raised $30 billion. The Renaissance IPO Indices are market cap weighted baskets of newly public companies. The Renaissance IPO Index is down 7% year-to-date, compared to -6% for the S&P 500. Renaissance Capital's IPO ETF (NYSE: IPO) tracks the index, and top ETF holdings include Synchrony Financial (SYF), Alibaba (BABA) and Citizens Financial Group (CFG). The Renaissance International IPO Index is down 2% year-to-date, compared to -7% for ACWX. Renaissance Capital’s International IPO ETF (NYSE: IPOS) tracks the index, and top ETF Holdings include Recruit Holdings and NN Group.
