U.S. IPO Recap: Benefitfocus, Six Others Set Terms As Calendar Rebuilds

by: Renaissance Capital IPO Research

Joined by fast-growing SaaS company Benefitfocus (NASDAQ:BNFT), four biotechs led the way in rebuilding the U.S. IPO calendar last week. Matching the total for all of August, seven companies set terms for deals, all of which are expected to price this month. All were relatively small offerings, but five were enterprise software or biotech deals, which have generated strong demand this year. If at least three of the five biotechs on the calendar successfully price, 2013 will surpass 2000's thirteen-year high of 26 biotech IPOs in a single year.

Goldman-backed Benefitfocus launches $104 million deal
Benefitfocus was the sole tech company added to the calendar last week. Its cloud-based platform helps manage employee benefit programs, especially for large employers like Fender and Wet Seal. The company also provides marketing to insurance carriers, including Aetna (NYSE:AET) and Allstate (NYSE:ALL). Goldman Sachs holds a 66% stake after investing in 2007.

As returns start to fade, four will test the hot biotech market
The majority of last week's new deals came from early-stage biotechs, each of which filed to raise less than $75 million. The companies will have to hope that investors' recent enthusiasm for the sector survived the summer break. Proceeds for biotech IPOs in 2013 have totaled $1.8 billion, nearly reaching the level of the past three years combined ($1.9 billion), and the average return of 47% has far exceeded the overall IPO average return of 30%. Third quarter biotech IPOs have been a mixed bag, however. While just one of the 16 deals from the first half has posted a negative return, half of the eight third quarter biotech IPOs are now trading below their offer prices, and three fell on their first days of trading. The average return for the third quarter deals is 20%, close to the overall IPO average return of 18%.

At least three of the four new companies could find greater success because of their large collaboration agreements. Five Prime Therapeutics (NASDAQ:FPRX) has received $220 million from GlaxoSmithKline (NYSE:GSK), UCB Pharma, Pfizer (NYSE:PFE) and other partners. It could earn an additional $435 million based on the progress of its lead candidate, which GSK is developing. BIND Therapeutics (NASDAQ:BIND) could capture more than $1 billion in milestone payments by developing targeting mechanisms for drugs from Amgen (NASDAQ:AMGN), Pfizer and AstraZeneca (NYSE:AZN). Acceleron (NASDAQ:XLRN) is seeking the largest valuation in the group based on its partnership with Celgene (NASDAQ:CELG) for two Phase 2 candidates. Celgene is a collaboration partner of three 2013 biotech IPOs, each of which is up 50% or more from its offer price (Epizyme +99%, Agios +50% and bluebird bio +50%).

IPOs setting terms (week of September 2, 2013)
Company (Ticker) Business Deal Size ($mm) LTM Sales ($mm)
Benefitfocus (BNFT) Employee benefits management software $104 $91
OCI Resources LP (OCIR) Soda ash production $100 $446
BIND Therapeutics (BIND) Targeted cancer therapeutics $71 $5
Acceleron Pharma (XLRN) Protein therapeutics $65 $49
Fate Therapeutics (NASDAQ:FATE) Stem cell treatments $60 $2
Five Prime Therapeutics (FPRX) Protein therapeutics $52 $26
Tecogen (NASDAQ:TGEN) Electricity, hot water and AC systems $20 $15

Apollo-backed EP Energy leads new filers
Four private-equity backed companies, including two large LBOs, were added to the IPO pipeline last week. EP Energy (NYSE:EPE), an oil and gas E&P, was acquired from El Paso for $7.2 billion in February 2012 by Apollo, Riverstone, Access and KNOC. Surgical Care Affiliates (SCA.RC), which operates outpatient surgery facilities, was acquired by TPG for $945 million in 2007. TPG, through its venture arm, is also a backer of the week's only biotech filer, MacroGenics (NASDAQ:MGNX). MacroGenics has received $106 million from collaborators Servier, Gilead (NASDAQ:GILD), Boehringer and Pfizer. Its lead candidate, for gastroesophageal cancer, is entering Phase 3 trials.

New IPO filers (week of September 2, 2013)
Company (Ticker) Business Deal Size ($mm) LTM Sales ($mm)
EP Energy (EPE) Apollo-backed oil and gas E&P $500 $1,747
Surgical Care Affliliates (SCA.RC) Outpatient surgery facilities $100 $769
Stonegate Mortgage (NYSE:SGM) Residential mortgage loans $100 $149
MacroGenics (MGNX) Antibody-based therapeutics $60 $49

IPO market snapshot
The 131 IPOs in 2013 have raised $28.5 billion and produced an average return of 30%. There have been 54 IPOs in the past 90 days, with total proceeds of $11.3 billion and an average return of 22%. The active IPO pipeline includes 113 companies looking to raise $31.7 billion.