The IPO market saw 10 companies price last week, bringing the year's total up to 134, which surpasses 125 IPOs in 2011 and 128 in 2012. Eighteen companies have rallied to price this week before the second quarter ends and the short Independence Day week begins, including pre-recession LBOs Michaels and ServiceMaster. If all of them price, it would be the highest number of IPOs in one week since December 2004. The burgeoning IPO calendar is a reflection of elevated IPO performance, as the Renaissance IPO ETF is up 7% in the past month compared with 4% for the S&P 500. The total IPO return for the year is nearly 19%, which includes a 14% first-day pop and a 5% gain available to IPO investors in the aftermarket.
Three energy IPOs priced last week, continuing the industry's surge from the prior week, along with five drug makers and the financial data titan Markit (NASDAQ:MRKT). Markit's entire offering was sold by existing shareholders, many of which underwrote the deal and are among its largest customers, including JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Deutsche Bank (NYSE:DB) and Goldman Sachs (NYSE:GS). Markit was the fifth IPO to raise more than $1 billion this year, and its 11% first-day gain is typical for IPOs of its size (first-day returns for the five $1 billion-plus IPOs average 7% and range from -4% to +15%).
The week's top performer, Kite Pharma (NASDAQ:KITE) became the year's largest biotech IPO after it increased both its price and shares offered to raise 63% more than originally planned. The company then spiked 71% on Friday in the best first-day performance since March. Kite develops cancer immunotherapies, an area of intense medical interest, and has a close partnership with the National Cancer Institute. Early clinical results from its lead product candidate showed an 86% response rate in hard-to-treat patients. ZS Pharma (NASDAQ:ZSPH), which develops a treatment for hyperkalemia, or excess potassium, popped 58% on its first day and ended the week at that level. The late-stage biotech addresses a large unmet need with only one direct competitor - November 2013 IPO Relypsa (NASDAQ:RLYP). Zafgen (NASDAQ:ZFGN) was the third biotech with strong returns last week, and trades 24% above its IPO price. The company's obesity drug has delivered positive results for patients with severe disorders, while investors could also be betting on it finding a cure for America's obesity epidemic.
Viper Energy Partners LP (NASDAQ:VNOM), an oil and gas MLP formed out of Diamondback Energy (FANG), up 413% from its 2012 IPO), gained 31% after pricing 30% above its midpoint. Parent Diamondback will continue to contribute assets and cause quarterly distributions to grow. While energy IPOs have generally outperformed other sectors, Foresight Energy LP (NYSE:FELP) and Eclipse Resources (NYSE:ECR) both ended the week below their IPO price. Eclipse, a high-growth E&P in the Appalachian Basin, fell 5% on its Friday debut. The company's limited operating history, high capex and insider selling could have led investors to question the ambitious valuation. Foresight may have suffered from the perception that increased regulation will limit the use of coal, and its $350 million IPO was down 2% by Friday. However, the five energy IPOs with the best aftermarket performance this year (40% average) traded poorly on their first day (-4% average, ranging from -10% to +4%).
Other poor performers included Century Communities (NYSE:CCS) and Parnell Pharmaceuticals (NASDAQ:PARN). Century, down 9%, is the second homebuilder to IPO this year (after The New Home Company, NWHM) in what has been an uneven housing recovery, as new housing starts fell 7% in May after rising 13% in April. Parnell, an Australian maker of osteoporosis and reproductive drugs for dogs, horses and cows, fell 22% after pricing 44% below the range as the company competes with much larger pharmaceuticals in a commoditized market.
|IPO pricings (week of June 16, 2014)|
|Company (Ticker)||Business||Deal Size ($mm)||IPO Price vs. Midpoint||Return as of 6/20|
|Kite Pharma (KITE)||Biotech: Immunotherapies with the NCI||$128||31%||71%|
|ZS Pharma (ZSPH)||Biotech: treatment for excess potassium||$107||13%||58%|
|Viper Energy Partners LP (VNOM)||Oil and gas E&P spun out of Diamondback||$130||30%||31%|
|Zafgen (ZFGN)||Biotech: treatment for severe obesity||$96||7%||24%|
|Markit (MRKT)||Bond data and trade processing||$1,283||0%||12%|
|Ardelyx (NASDAQ:ARDX)||Biotech: treatment for kidney disease||$60||0%||2%|
|Foresight Energy LP (FELP)||Illinois Basin coal producer||$350||0%||-2%|
|Eclipse Resources (ECR)||Appalachian oil and gas E&P||$818||-5%||-5%|
|Century Communities (CCS)||Homebuilder primarily in Colorado||$103||-6%||-9%|
|Parnell Pharmaceuticals (PARN)||Australian drug maker for animals||$50||-44%||-22%|
IPO market snapshot
So far this year, 134 IPOs have raised $28.9 billion and produced an average first day return of 14%. The Renaissance IPO ETF (NYSEARCA:IPO), a cap-weighted basket of newly public companies and indicator of post-IPO performance, has gained 3% compared with 6% for the S&P 500. Over the last 30 days, the IPO ETF has risen 7% compared with 4% for the S&P 500, suggesting that June's high IPO activity could continue into July. The active IPO pipeline includes 128 companies looking to raise a total of $49.6 billion, the highest level of the year ahead of a packed week for pricings.