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The royal treatment: Year's largest IPO Royalty Pharma soars 58.9% in first day of trading

June 16, 2020

Royalty Pharma (RPRX) jumped 58.9% on Tuesday, the latest and largest in a string of successful IPOs, particularly from the healthcare sector.

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Royalty Pharma raised $2.2 billion at a market cap of $16.7 billion, the largest US IPO in over a year. Backed by various private equity firms, hedge funds, and family offices, its existing shareholders sold 23% of the deal. In a sign of demand, last week the company pulled forward its pricing date by a day. It was also this week's highest-polling deal on the Renaissance IPO Poll (see results).

Since 2010, only two other billion-dollar IPOs have had a higher first-day pop, Twitter (+72.7%; Nov. 2013) and Chewy (+59.0%; Jun. 2019). Since 2015, 34 billion-dollar IPOs have priced in the US, averaging a first-day return of 12.9%, and a total return of 30.8%.

Royalty Pharma marks one of the best billion-dollar IPO pops since 2015
Company Business IPO Trade
Date
First-Day
Return
Return
from IPO
Chewy (CHWY) Pet supplies e-tailer 06/14/19 59.0% 114.0%
Royalty Pharma (RPRX) Drug royalty rights 06/16/20 58.9% 58.9%
Elanco Animal Health (ELAN) Animal pharmaceuticals  09/20/18 50.0% -8.0%
Snap (SNAP) Social media app 03/02/17  44.0% 22.9%
Pinduoduo (PDD) Chinese e-commerce 07/26/18 40.5% 310.5%

Founded in 1996, Royalty Pharma is the largest acquirer of drug royalty interests, forming relationships with large pharmaceuticals, biotechs, research hospitals, academic institutions and others. It boasts a portfolio of royalty interests in blockbuster therapies (e.g. Imbruvica, Kalydeco, Xtandi) as well as others in development. The experienced acquirer has a history of strong free cash flow (adj. $1.4B in the LTM). Key risks include its reliance on a handful of therapies for the majority of its revenue, and the fact that the area of specialized finance it pioneered is becoming more competitive.

The IPO market has delivered strong returns in 2020, particularly larger IPOs. 2020 IPOs now average a first-day return of 28.7%, and a total average return of 48.2% from the offer price. Average returns are even higher for IPOs raising at least $100 million: 40.4% on day one, and 69.2% from offer. The Renaissance IPO Index (IPOUSA), a basket of the largest and most liquid IPOs over the past two years tracked by the IPO ETF (NYSE: IPO), has returned 27.8% year-to-date, compared with -2.4% for the S&P 500.

The healthcare sector has been a driver of both IPO activity and returns. 29 healthcare IPOs have priced in 2020, primarily biotechs, accounting for 56% of the year's deal flow excluding SPACs. They've averaged a first-day pop of 36% and a total return of 75%. More than a third trade at more than 100% above issue.

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