U.S. IPO Market In Desperate Need Of Some Oxygen After Q1

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Includes: AVXS, BGNE, CRVS, EDIT, HCM, PTI, SNDX
by: Trent Tillman

Summary

Slowest First Quarter of U.S. IPOs since 2009.

Combined proceeds well below $1 billion mark.

U.S. IPO market may show some signs of life in Q2.

First quarter 2016 was the slowest quarter for U.S. IPOs since Q1 2009 (when there was just 1 IPO in Q1, and the world was about to implode). There were just 7 offerings, all in Healthcare, representing approximately $623 million in proceeds. This compares to the same quarter in 2015, in which there were 31 offerings raising approximately $4.87 billion in proceeds. There were more postponed /pulled offerings in the quarter that there were pricings, with 5 of the 8 postponed in non healthcare sectors. New filings were also down for the quarter with 22, about half of the total for the same period in 2015.

Q1 2016 Pricings:

2/3/16: BeiGene, Ltd (NASDAQ:BGNE)- Beijing, China: A clinical stage biopharmaceutical company developing molecularly targeted and immune oncology drugs for the treatment of cancer. The company priced 6.6 million shares (up from 5.5 million) at $24, the high end of the indicated range. The lead underwriters for the offering were Goldman Sachs, Morgan Stanley, and Cowen.

2/3/16: Editas Medicine Inc. (NASDAQ:EDIT)- Cambridge, MA: A pre-clinical stage genomic editing company focusing on treating patients with genetically defined diseases. The company priced 5.9 million shares at $16, the low end of the indicated range. The lead underwriters for the offering were Morgan Stanley and JP Morgan.

2/11/16: Avexis, Inc. (NASDAQ:AVXS)- Bannockburn, IL: A clinical stage gene therapy company focused on the discovery of novel treatments for patients suffering from rare and life threatening neurological genetic diseases. The company priced 4.75 million shares (up from 4.25 million) at $20, the middle of the indicated range. The lead underwriters were Goldman Sachs, Jefferies, and BMO.

2/11/16: Proteostasis Therapeutics, Inc. (NYSE:PTI)- Cambridge, MA: A Phase 1 stage biopharmaceutical company focused on diseases caused by an imbalance in the proteostasis network. The company priced 6.25 million shares (up from 3.85 million) at $8, well below the original range of $12-14. The lead underwriters were Leerink Partners and RBC.

3/3/16: Syndax Pharmaceuticals Inc. (NASDAQ:SNDX)- Waltham, MA: A late-stage biopharmaceutical company focused on the development and commercialization of their lead product candidate, entinostat, an epigenetic therapy for treatment-resistant cancers. The company priced 4.4 million shares at $12, below the indicated range of $14-16. The lead underwriters were Morgan Stanley and Citigroup.

3/17/16: Hutchison China MediTech Ltd. (NASDAQ:HCM)- Hong Kong: A late stage biopharmaceutical company focused on the discovery, development and commercialization of targeted therapies for oncology and immunological diseases. Prior to their U.S. offering, the company was already listed on the AIM market in London under the symbol HCM. They priced 7.5 million ADS (up from 6.15 million) at $13.50. The lead underwriters for the offering were, BofA Merrill Lynch and Deutsche Bank.

3/23/16: Corvus Pharmaceuticals Inc. (NASDAQ:CRVS)- Burlingame, CA: A clinical stage biopharmaceutical company focused on the development and commercialization of immuno-oncology therapies designed to harness the immune system to attack cancer cells. The company priced 4.7 million shares at $15, the low end of the anticipated range. The lead underwriters were Credit Suisse and Cowen.

Of the 7 healthcare companies that did come to market, 4 priced at the low end or below the expected range, 4 closed down on day 1 and one was flat on day one. Most of these offerings were propped by heavy insider buying and a very tight concentration of "clubby" investors. All but the last two saw their stock benefit with positive closing prices by the end of the quarter.

IPO Date

Symbol

Price

Day 1 open

Day 1 close

Q1 close

Q1 %return

2/3/2016

BGNE

$ 24.00

$ 28.87

$ 28.32

$ 29.31

22%

2/3/2016

EDIT

$ 16.00

$ 18.00

$ 18.20

$ 34.54

116%

2/11/2016

AVXS

$ 20.00

$ 18.02

$ 18.05

$ 27.24

36%

2/11/2016

PTI

$ 8.00

$ 8.00

$ 6.64

$ 9.64

21%

3/3/2016

SNDX

$ 12.00

$ 12.11

$ 12.01

$ 13.32

11%

3/17/2016

HCM

$ 13.50

$ 13.50

$ 13.40

$ 13.20

-2%

3/23/2016

CRVS

$ 15.00

$ 15.00

$ 14.25

$ 14.50

-3%

Click to enlarge

Although it is not yet time to take the IPO market off life support, it is starting to show signs of life. With a decent pipeline waiting, there appears to be some progress building. A couple much anticipated filings are set to price in the next couple weeks, including the 2nd effort of global securities exchange operator BATS Global Markets Inc., the first potential tech deal of the year from managed security service provider SecureWorks Corp., and what would be the largest deal so far this year (surpassing the total raised from Q1) from gaming property REIT MGM Growth Properties.

A multitude of factors have dampened the IPO market thus far in 2016, including: the collapse of energy prices, early quarter overall volatility in security prices, decline in private tech valuations and lack of public exit for non profitable tech companies. As the market has stabilized somewhat over the last month plus, the window may be opening. The next few weeks may be more important for the overall health of the U.S. IPO market that what has transpired so far this year. The market needs these non healthcare related companies to be met with solid demand and positive early gains in order to pave the way for the number of companies waiting in the wings. If the overall market volatility remains in check, this slowdown will prove to be an overall positive and healthy rebalancing of the U.S. IPO market as valuations come down making way for more opportunities to profit going forward.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.