The IPO Week in Review - 3/17

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Vol. XII, Issue 12

IPO

News Desk

Prescription for Success:
Drug Makers Continue IPO Market Dominance

3/24/14 - The IPO market has been receptive to new issuers over the past 15 months, and few industries have taken advantage like the pharmaceutical preparations sector has. Drug makers are on a roll, and there is no end in sight for their market dominance. They finished 2013 as the busiest SIC Code with 36 new issues, nearly double the 19 IPOs for the second-best business, real estate investment trusts. So far in 2014, pharmaceutical preparations companies have accounted for 41% of the year’s deals. The 20 SIC 2834 offerings mark a performance five times better than that of the next closest industry (oil and gas companies).

Not only are they prevalent, but pharmaceutical preparations IPOs have been well received by investors. Of all deals completed since the start of 2013, the four best aftermarket performers as of March 19, 2014 are drug makers. They are Insys Therapeutics (+771%), GW Pharmaceuticals (+718%), Relypsa (+298%) and Receptos (+277%). Six of the top ten aftermarket performers over the past 15 months are pharmaceutical preparations companies (IPO Vital Signs Subscribers see VS #299. IPO Aftermarket Performance by SIC Code).

The strong performance by many SIC 2834 stocks is one of the reasons that new registrants from this industry are flocking to the public markets. Of the 80 new registrations filed his year, 19 have been by pharmaceutical companies. The filings are coming at a faster pace than last year. In 2013, 47 pharmaceutical preparations companies submitted new registrations, but only eight of those were filed in the first quarter. The fourth quarter of last year is when the industry really began to gain momentum as 20 companies publicly registered their prospective offerings.

Other SIC Codes - Pharmaceutical companies easily outdistanced other industries in 2013 with a 15.2% share of the market, and 2834 has been among the top five SIC Codes in each of the past four years. The sector was second in 2012 with 11 IPOs, behind prepackaged software companies (SIC 7372), another industry that annually ranks among the top five SIC Codes. In 2012, software companies claimed the top spot with 15 deals (a 10.6% market share). Pharmaceutical preparations deals fell to fifth place in 2011 with 8 IPOs after finishing first in 2010 (12 deals and 7.1% of the market).

Real estate investment trusts (SIC 6798), which finished second last year with 19 offerings, have yet to make an appearance in the 2014 IPO market. REITs are another group that is perennially in the top five of the year-end SIC Code performance rankings. The industry finished fourth in 2012 and 2011 with 8 deals in each year, and second in 2010 with 11 IPOs. The slow start this year by REITs is surprising, as is the one deal completed year-to-date by the prepackaged software industry.

Conversely, oil and gas companies (SIC 1311) are off to a great start in 2014. The industry has already seen four IPOs, the same number of deals it completed in all of 2013. However, no new registrations have been filed by SIC 1311 companies yet in 2014, so the group’s IPO total may slow in the coming months. Only two blank checks companies (SIC 6770) have completed IPOs so far in 2014, placing the industry in a third place tie with SIC 2836 (Biological Products) and 3845 (Electromedical and Electrotherapeutic Apparatus). Blank checks led all SIC Codes in 2011 (16 IPOs, 11% of the market), and finished third and fourth in 2012 and 2013, respectively.

Top Five IPO SIC Codes
2010 - Present

(*Through March 16, 2014)
IPO Vital Signs Subscribers see, #324. SIC Codes

Banks Behind the Industries - As it is common for investment banks to handle multiple deals within the same industry, it has definitely been the case for the pharmaceutical preparations industry in 2014. Four of the top five spots in the ranking of lead managers by industry sector are occupied by banks that worked on biotech and pharmaceutical new issues. Jefferies, Cowen and Co. and Stifel, Nicolaus have led five such IPOs apiece, and U.S. Bancorp Piper Jaffray is close behind with four.

Leerink Partners is in the top five this year, having served as first lead manager on three biotech/pharmaceuticals deals. The underwriter specializes in the health care industry - all of its 23 lead manager assignments since the start of 2011 were in the health care field, with 20 of them being pharmaceuticals preparations companies. Leerink led 13 biotech/pharmaceuticals IPOs in 2013, which earned it a first place tie for most new issues by one lead manager in one industry. Citi also had 13 lead manager assignments last year in one industry - the energy and natural resources sector.

The success of energy IPOs in 2012 was good for Citi and several other investment banks, including Barclays Bank, Bank of America Merrill Lynch and Morgan Stanley. The strongest industry-lead manager link in the IPO market that year was Citi’s 11 energy deals, followed by Barclays’ ten energy IPOs. BofA Merrill Lynch and Morgan Stanley each led nine new issues by energy and natural resources companies in 2012. Morgan Stanley displayed a balanced IPO business that year by also leading eight deals for companies in the computer software and services sector.

Top Lead Managers by Industry Sector
2010 - Present

(*Through March 16, 2014)
IPO Vital Signs Subscribers see, #106. IPO Lead Managers

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