Twelve IPOs are set to raise $1 billion in the upcoming week, which would make it the busiest five-day stretch for IPOs since the week of July 28. Shake Shack's IPO offers investors a chance to own a fast-growing fast casual concept based in New York. Ten of the twelve deals are health care, as last year's most popular sector continues to outperform. Assuming they all price, there could be three more health care IPOs than any week in 2014. Six biotechs, two diagnostic companies, and two medical products companies are on the IPO calendar. Six more IPOs are already set for next week, all of which are health care.
Shake Shack ready to serve a sizzling IPO
Shake Shack (NYSE:SHAK) could be the week's hottest deal. The fast casual chain, one of several "better burger" restaurants, offers attractive cash-on-cash returns and superior average unit volumes. Wall Street investors may also be drawn to owning a favorite New York brand. California-based Habit Restaurants gained 120% on its November debut, but now trades about 65% above its IPO price. Last year's restaurant IPOs Zoe's Kitchen (ZOES; +104%) and El Pollo Loco (LOCO; +75%) have also outperformed. Investors should be cautious if Shake Shack flies up like Habit, as high-growth brands sometimes trade on hype over fundamentals, especially during the first day. Critics may also point to decelerating comparable store sales growth and a concentration in Manhattan, though the company does have a sizable international presence.
Week's largest IPO is the only one with a dividend
InfraREIT (NYSE:HIFR), a Texas-based electric transmission and distribution asset owner, is expected to raise $400 million at a $1.2 billion valuation. While mortgage REIT Sutherland Asset Management (NYSE:SLD) postponed earlier this month, recent equity REITs Paramount Group (NYSE:PGRE) and STORE Capital (STRE) trade up 10% and 24%, respectively. Despite related party transactions and uncertainty around how low oil prices may impact the demand for electricity, InfraREIT offers a relatively high yield, has long-term contracts and believes it can grow distributions over the next few years.
Six IPOs make up 2015's first round of biotechs
Based on the performance of last year's 71 biotech IPOs (average +44%), 2015 could also be a big year for biotechs as venture firms and cash-intensive development companies tap public markets while the window is open. Looking to raise $88 million, Spark Therapeutics (NASDAQ:ONCE) is in Phase 3 trials for its gene therapy targeting a rare retinal disease. It is also partnered with Pfizer to develop a drug for hemophilia B. Spark has been funded with over $120 million from investors such as The Children's Hospital of Philadelphia, Sofinnova, T. Rowe Price, Wellington Management and others. Close peer and 2014 IPO Avalanche Biotechnologies (AAVL) gained 65% on its first day and now trades 135% above the offer price. Ascendis Pharma (NASDAQ:ASND) has completed Phase 2 trials for its weekly therapy for its targeted orphan disease, growth hormone deficiency. Investors include Sofinnova and Orbimed, and insiders intend to purchase 26% of the $85 million float. Close peer Versartis (NASDAQ:VSAR) was one of nine biotechs last year to price above its range and it gained 49% on the first day, but now trades 18% below the offer price.
Cancer biotech TRACON Pharmaceuticals (NASDAQ:TCON) is in multiple Phase 1/2 trials, two of which are sponsored by the National Cancer Institute. Backed by New Enterprise Associates and JAFCO, TRACON's antibodies target an alternative method of blocking angiogenesis, which is currently addressed by blockbuster drugs Avastin, Votrient, Inlyta, Nexavar and Lucentis. Osteoporosis biotech Zosano Pharma (NASDAQ:ZSAN), raised its deal size by 44% Monday morning, and now has about the same market cap as it did when the company postponed its IPO in July 2014. A close peer Radius Health (RDUS; +383%), Zosano recently partnered with pharmaceutical titan Eli Lilly.
Developing dietary supplements for muscle cramps, Flex Pharma (NASDAQ:FLKS), is looking to raise $60 million (40% from insiders). The company is led by veteran biotech entrepreneur Christoph Westphal, but remains early stage. Eyegate Pharmaceuticals (NASDAQ:EYEG) is also expected to price this week. The eye inflammation biotech originally filed to raise $25 million at a $101 million market cap in October, but has since cut those figures by about half.
Eyes and Nose IPOs: Two medical products companies
Presbia (NASDAQ:LENS) sells surgically implanted lenses to correct age-related vision loss. Its procedures take about 10 minutes and cost $3,000, paid for by the patient. The market opportunity is over $1 billion and it has had approval in the EU since 2010, competition could be fierce from close peer Staar Surgical (NASDAQ:STAA) and private competitors AcuFocus (backed by Medtronic, Carlyle, Versant) and ReVision Optics (Rusnano, J&J, Canaan, Domain). Entellus Medical (NASDAQ:ENTL) sells an in-office treatment for obstructed sinus pathways. The company's closest peer, July 2014 IPO Intersect ENT (NASDAQ:XENT), has traded up 94% from the offer price.
A diagnostic duo: Two early-stage coronary catheter makers
Infraredx (REDX) sells optical catheter systems used to detect cholesterol-rich coronary plaque, which are linked to coronary artery disease, the world's leading cause of death. Since US approval in 2012, the company has sold 143 systems, generating $5 million in sales in the trailing twelve months, and its partnership with Nipro should help Infraredx gain access to the robust Japanese market. Avinger (NASDAQ:AVGR) sells optical catheters used to detect peripheral arterial disease (PAD), and a device for removing arterial plaque is also in development. One of Avinger's key selling points could be the fact that its founder and executive team are from catheter maker FoxHollow, which went public in 2004 at a market value of $350 million and was acquired by Ev3 in 2007 for $780 million, a company that was later acquired by Covidien for $2.6 billion.
IPO Pipeline update
Only one company joined the IPO pipeline during the week of January 19, an oil tanker spinoff (TNKS) from DryShips. Technology companies continue delay filing publicly, with no initial filing in over 70 days. However, Box's (NYSE:BOX) 66% pop on Friday could encourage offerings from the tech sector. With six health care IPOs scheduled for next week, the sector represents 16 of the 18 deals (89%) on the IPO calendar.
IPO Index trending up
The Renaissance IPO Index, a market cap weighted basket of newly public companies that is designed to represent the US IPO market, gained 7.7% in 2014 and is up 13.8% in the past 90 days. The index's positive trend suggests a roaring IPO market could be in the cards this year, but also look at the performance of this week's deals as the IPOs price. Renaissance Capital's IPO ETF tracks the index, and its top holdings include Zoetis (NYSE:ZTS), Alibaba (NYSE:BABA), Twitter (NYSE:TWTR), Ally Financial (NYSE:ALLY) and Hilton (NYSE:HLT).