Week Ahead: One Pre-Sold Biotech IPO During A Short Holiday Week

|
Includes: CRVS
by: Renaissance Capital IPO Research

Corvus Pharmaceuticals is the only IPO on the calendar during the shortened holiday week.

Since reaching a year-to-date low on February 11, the S&P 500 has gained 12%, while the market cap-weighted Renaissance IPO Index has surged 19%. The VIX Volatility Index has fallen to about 14, its lowest point since August 2015, and its third week in a row comfortably below 20. Among all 2015 IPOs, 74% trade below issue - an improvement over February (~80%) but still a drag on new issuance.

The year's seven IPOs, all biotechs or small health care deals, have an average return of 20%, largely due to Editas Medicine's (NASDAQ:EDIT) 84% gain. Their strong performance serves as a weak signal for an open IPO market, given the substantial support these deals have received from insiders. Corvus has similar support.

Could this combination therapy unlock the cure for cancer?

Corvus Pharmaceuticals (NASDAQ:CRVS) expects to raise $75 million in the week ahead, below its original deal size of $115 million. The biotech is led by the executives behind blockbuster cancer drug Imbruvica at Pharmacyclics, which was sold to AbbVie (NYSE:ABBV) for $21 billion. Developing immune checkpoint inhibitors, Corvus targets an area of intense focus by large pharmas and biotechs alike (see last IPO, Syndax Pharmaceuticals (NASDAQ:SNDX)). Corvus last raised $75 million in September 2015, and insiders plan to purchase up to 33% of the IPO; crossover investors like BlackRock and Cormorant could help support the deal further.

Renaissance Capital's IPO Calendar - Week of 3/21/2016
Issuer
Business
Symbol
Exchange
Deal Size
$mil
Price Range
Shares Filed
Top two
bookrunners
Corvus Pharmaceuticals
Washington, DC
CRVS
Nasdaq
$75 $15 - $17
4,700,000
Credit Suisse
Cowen & Company
Developing checkpoint inhibitors to treat solid tumors.
Click to enlarge

The 1Q '16 will have the lowest IPO proceeds raised in over 20 years

IPOs rarely launch during holiday weeks, so we have a likely picture of the final 1Q '16 IPO deal flow. The quarter will end with less than 10 IPOs, the lowest number since 2009. It will be the first quarter in over 20 years without a non-healthcare IPO. Assuming Corvus raises $75 million, the quarter's eight healthcare IPOs (mostly biotechs) will have raised $672 million, the lowest sum in over 20 years - even less than the 1Q '09, when just one company (Mead Johnson (NYSE:MJN)) priced a $720 million offering. Additionally, the actual IPO proceeds provided by public investors this quarter will be far less due to widespread insider buying. That said, stable market conditions at the end of the quarter should bode well for an active 2Q.

IPO Market Snapshot

The Renaissance IPO Indices are market cap weighted baskets of newly public companies. The Renaissance IPO Index is down 9% year-to-date, compared to +0.3% for the S&P 500. Renaissance Capital's IPO ETF (NYSE: IPO) tracks the index, and top ETF holdings include Synchrony Financial (NYSE:SYF), Alibaba (NYSE:BABA) and Citizens Financial Group (NYSE:CFG). The Renaissance International IPO Index is down 4% year to date, compared to 0% for ACWX. Renaissance Capital's International IPO ETF (NYSE: IPOS) tracks the index, and top ETF Holdings include NN Group and Recruit Holdings.