Markets have rebounded, and volatility has settled. That's very good news for the IPO market, which is especially impacted by market turmoil.
Right now we're in the annual February lull, and companies are putting off IPOs to finalize full 2017 financials and get past the Presidents' Day holiday. The week's four offerings included two SPACs (raising $450 million) and two small healthcare companies ($30 million). Fast-growing pharmaceutical Biofrontera soared 44%, while pre-revenue device company Motus GI plummeted 20%.
IPO performance update
The Renaissance IPO Index, tracker for the IPO ETF (NYSE: IPO), traded up 5.9% and recovered to its all-time high. The 28 IPOs of 2018 average a solid gain of 21%. Excluding biotechs, the average return is 8%. The three best-performing deals are biotechs (ARMO, MNLO, SLDB), and the year's two tech IPOs (PAGS, CDLX) are #4 and #5. Biotech IPOs show no sign of slowing, and strong trading this week from recent IPOs Cardlytics and Cactus should be encouraging for tech and energy IPOs in the pipeline.
| 4 IPOs During the Week of February 12th, 2018 | |||||
|---|---|---|---|---|---|
| Issuer Business |
Deal Size |
Market Cap at IPO |
Price vs. Midpoint |
First Day Return |
Return at 02/16 |
| Biofrontera (BFRA) | $12M | $219M | 1% | +23% | +44% |
| Sells treatments for skin conditions caused by sun damage. | |||||
| DFB Healthcare Acq. (DFBHU) | $250M | $313M | 0% | +0% | +0% |
| Blank check company backed by Deerfield and led by the former CEO of Universal American. | |||||
| Leo Holdings (LHC.U) | $200M | $250M | 0% | -1% | +0% |
| Blank check company formed by Lion Capital executives to acquire a consumer business. | |||||
| Motus GI (MOTS) | $18M | $79M | -17% | -12% | -20% |
| Developing a medical device to assist with intraprocedural colonoscopy cleaning. | |||||
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Skin pharma soars 44% on US listing
Listed in Frankfurt, Biofrontera (BFRA) raised $12 million in its US IPO, plus $17 million from existing shareholders. The German pharmaceutical priced its ADSs at $9.88, a discount to the February 13 as-converted price of $12.76 for its common shares. It finished the week at $14.23, a gain of 44%. Biofrontera sells a light-activated prescription gel for treating scaly skin growths caused by sun damage. Sales doubled in the 3Q17 to $2.9 million (88% gross margin) as it continued to roll out its product in the US.
Not a clean deal: colonoscopy device developer drops 20%
After delaying its IPO in the prior week, Motus GI Holdings (MOTS) priced at the low end to raise $17.5 million, with 41% taken down by insiders. The micro-cap device company dropped on its debut, and ended the week with a -20% return, making it the year's worst-performing deal. The single-product company has no commercial track record.
Record pace for blank check companies continues: 2 SPACs price
Deerfield Management's DFB Healthcare Acquisitions (DFBHU) raised $250 million. It is led by Richard Barasch, the former CEO of Universal American Corp. UK-based Leo Holdings (LHC.U) raised $200 million after delaying its IPO and lowering the deal size. Led by the founder of sponsor Lion Capital, the SPAC will target the consumer sector. 2017 was the biggest year for SPACs in a decade with 32 deals, and 2018 is on pace to beat it. Eight SPACs have priced IPOs this year, 29% of the total deal count.
IPO Pipeline Update: 5 filings include Cybersecurity unicorn Zscaler; AXA Equitable targets 2Q18
Five companies filed for IPOs, ahead of an anticipated pickup in filings next week. Cybersecurity unicorn Zscaler (ZS) filed to raise $100 million. It grew sales by 53% to $45 million in the MRQ, and was nearly breakeven on operating cash flow. Three biotechs filed: Cancer immunotherapy developer Arcus Biosciences (RCUS; $100 million), drug repurposing biotech BioXcel Therapeutics (BTAI; $69 million), and lipid formulation biotech Taiwan Liposome Company (TLC; $50 million). Minnesota commercial bank Bridgewater Bancshares (BWB) filed to raise $50 million. The largest US IPO on file, AXA Equitable (AEQH), selected a ticker and an exchange, and stated its intention to list in the 2Q18.
IPO Market Snapshot
The Renaissance IPO Indices are market cap weighted baskets of newly public companies. The Renaissance IPO Index has returned 3.4% year-to-date and the S&P 500 is up 2.2%. Renaissance Capital's IPO ETF (NYSE: IPO) tracks the index, and top ETF holdings include Snap (SNAP) and US Foods (USFD). The Renaissance International IPO Index is up 2.5% year-to-date, while the ACWX is up 2.1%. Renaissance Capital’s International IPO ETF (NYSE: IPOS) tracks the index, and top ETF holdings include Orsted (DONG Energy) and ASR Nederland.
