United States: Q3 2017 IPO Market Review

Last Updated: January 22 2018
Article by David Westenberg

Originally published September 2017

The IPO market produced 27 IPOs in the third quarter of 2017, down from the 45 IPOs in the second quarter but bringing the total over the first three quarters of the year to 92 IPOs. Despite the dip in deal flow in the third quarter, the tally for the first three quarters of 2017 was one‑third above the 69 IPOs over the first three quarters of 2016 and only two IPOs shy of the corresponding average of 94 IPOs over the ten-year period preceding 2016.

Gross proceeds in the third quarter of 2017 were $3.73 billion, down from $8.61 billion in the second quarter. Over the first three quarters of 2017, gross proceeds were $20.43 billion, almost 75% higher than the $11.72 billion over the first three quarters of 2016, but 21% lower than the $25.77 billion over the ten-year period preceding 2016.

Life sciences companies have accounted for 29 of the year's IPOs, or 32% of the total, compared to 41% of the total in 2016, 47% in 2015 and 40% in 2014. While the 2017 percentage trails the 43% that prevailed over those three years, it is well above the 18% over the ten-year period preceding 2014.

The median offering size for all IPOs over the first three quarters of 2017 was $113.0 million—15% higher than the median figure of $98.0 million over the five-year period preceding 2017. Over the first three quarters of 2017, IPOs by emerging growth companies (EGCs), accounting for 84% of the year's IPOs, had a median offering size of $99.7 million, compared to $454.0 million for non-EGCs. From 2012 to 2016, the median EGC IPO offering size was $85.9 million, compared to $421.1 million for non-EGCs. The median offering size for life sciences company IPOs over the first three quarters of 2017 was $75.1 million, up from a median of $65.0 million over the five preceding years. In comparison, non-life sciences IPO companies in the first threequarters of 2017 had a median offering size of $157.5 million.

The median annual revenue of IPO companies in the first three quarters of 2017 was $92.1 million, 39% higher than the $66.5 million figure for 2016 and 14% higher than the $80.9 million figure for the five-year period preceding 2016. EGC IPO companies over the first three quarters of 2017 had median annual revenue of $33.8 million—30% below the $48.6 million median figure that prevailed over the preceding years following enactment of the JOBS Act in April 2012. Non-EGC IPO companies had median annual revenue of $2.05 billion over the first three quarters of 2017, down 1% from the $2.08 billion over the preceding years following enactment of the JOBS Act. Only eight of the life sciences IPO companies (28% of all life sciences IPOs) over the first three-quarters of 2017 were revenue generating.

The median annual revenue of VC-backed IPO companies over the first three quarters of 2017 was $15.5 million, 43% lower than the $27.0 million figure over the preceding five-year period. In comparison, private equity–backed IPO companies in 2017 had median annual revenue of $548.2 million, down 14% from the $636.8 figure over the preceding five-year period.

Over the first three quarters of 2017, only 22% of IPO companies have been profitable, compared to 36% in 2016 and below even the 26% from 1999 to 2000 at the apex of the dot-com boom. Only 18% of EGC IPO companies were profitable, compared to 40% for non-EGCs.

Through September 30, the average 2017 IPO has produced a first-day gain of 13%, just ahead of the 12% average first-day gain for 2016 IPO companies but below the 16% average first-day gain for IPO companies over the five-year period preceding 2016. The average 2017 life sciences IPO company produced a first-day gain of 12%, compared to 14% for all other 2017 IPO companies. Over the first three quarters of 2017, 23% of IPOs have been "broken" (IPOs whose stock closes below the offering price on their first day), compared to 24% of IPOs in 2016.

At September month-end, the average 2017 IPO company was trading 34% above its offering price, with 26% of all 2017 IPOs trading below their offering price and 41% trading at least 25% above their offering price. The average 2017 life sciences IPO company was up 38% from its offering price at month end, compared to a 32% gain for all other IPO companies.

IPO activity in the third quarter of 2017 consisted of offerings by the following companies listed in the order they came to market:

  • Co-Diagnostics, a molecular diagnostics company that has developed and intends to manufacture and sell reagents used for diagnostic tests that function via the detection and/or analysis of nucleic acid molecules (DNA or RNA), and to sell diagnostic equipment from other manufacturers as self-contained lab systems, priced a downsized IPO below the range and ended its first day of trading down 3% from its offering price.
  • Akcea Therapeutics, a late-stage biopharmaceutical company focused on developing and commercializing drugs to treat patients with serious cardiometabolic diseases caused by lipid disorders, priced an upsized IPO below the range and produced a first-day gain of 19%.
  • Calyxt, a consumer-centric, food- and agriculture-focused company combining its leading gene-editing technology and technical expertise with its innovative commercial strategy to deliver healthier specialty food ingredients, such as healthier oils and high fiber wheat, for consumers and agriculturally advantageous crop traits, such as herbicide tolerance, to farmers, priced an upsized IPO at the low end of a downwardly revised price range and gained 41% on its first trading day.
  • Kala Pharmaceuticals, a biopharmaceutical company focused on the development and commercialization of therapeutics using its proprietary nanoparticle-based Mucus Penetrating Particles technology, with an initial focus on the treatment of eye diseases, priced at the midpoint of the range and ended its first day of trading with a 23% gain.
  • PetIQ, a rapidly growing distributor and manufacturer of veterinarian-grade pet prescription medications, over-the-counter flea and tick preventatives and health and wellness products for dogs and cats, priced an upsized IPO at the high end of the range and produced a 46% first-day gain.
  • RBB Bancorp, a California state-chartered commercial bank focused on providing commercial banking services to first generation immigrants, priced an upsized IPO at the midpoint of the range and ended its first trading day up 2% from its offering price.
  • Sienna Biopharmaceuticals, a clinical-stage biopharmaceutical company focused on bringing innovations in biotechnology to the discovery, development and commercialization of first-in-class, targeted, topical products in medical dermatology and aesthetics, priced at the midpoint of the range and gained 28% in first-day trading.
  • Newater Technology, a wastewater purification treatment company that focuses on the development, manufacture and sale of disk tube reverse osmosis and disk tube nanofiltration membrane filtration products that are used in the treatment, recycling and discharge of wastewater, priced at the top of the range and ended its first day of trading up 79% from its offering price.
  • Redfin, a technology-powered residential real estate brokerage representing people buying and selling homes in over 80 markets throughout the United States, priced above the range and produced a first-day gain of 45%.
  • Clementia Pharmaceuticals, a clinical-stage biopharmaceutical company that is developing disease-modifying treatments for patients suffering from debilitating bone and other diseases with high unmet medical need, priced an upsized IPO at the high end of the range and produced a first-day gain of 9%.
  • Venator Materials, a leading global manufacturer and marketer of chemical products that improve the quality of life for downstream consumers and promote a sustainable future, priced at the low end of the range and ended its first day of trading with a 3% gain.
  • Zealand Pharma, a biotechnology company focused on the discovery, design and development of innovative peptide-based medicines, priced in line with expectations and ended its first trading day down five cents from its offering price.
  • Ranger Energy Services, one of the largest independent providers of high-specification well service rigs and associated services in the United States, with a focus on technically demanding unconventional horizontal well completion and production operations, priced an upsized IPO below the range and declined 2% in first-day trading.
  • YogaWorks, one of the largest and fastest growing providers of high quality yoga instruction in the U.S., with almost 3 million student visits in 2016 and 50 company-owned studios, priced an upsized IPO at the low end of the downwardly revised range and ended its first day of trading down 12% from its offering price.
  • BEST, a leading and fastest-growing Smart Supply Chain service provider in China with a platform combining technology, integrated logistics and supply chain services, last-mile services and value-added services, priced at the low end of a downwardly revised price range and ended its first day of trading up 5% from its offering price.
  • Celcuity, a cellular analysis company that is discovering new cancer sub-types and commercializing diagnostic tests designed to significantly improve the clinical outcomes of cancer patients treated with targeted therapies, priced an upsized IPO above the midpoint of the range and produced a 50% first-day gain.
  • Despegar.com, the leading online travel company in Latin America, known by its two brands, Despegar, its global brand, and Decolar, its Brazilian brand, priced at the high end of the range and gained 22% on its first trading day.
  • Krystal Biotech, a gene therapy company dedicated to developing and commercializing novel treatments for patients suffering from dermatological diseases, priced an upsized IPO at the midpoint of the range and produced a first-day gain of 6%.
  • Zai Lab, an innovative biopharmaceutical company based in Shanghai focusing on discovering or licensing, developing and commercializing proprietary therapeutics that address areas of large unmet medical need in the China market, including in the areas of oncology, autoimmune and infectious diseases, priced a twice upsized IPO at the high end of the range and gained 55% in first-day trading.
  • Secoo Holding, Asia's largest online integrated upscale products and services platform as measured by the total value of all orders of products and services placed in 2016, according to a report prepared by Frost & Sullivan, priced towards the top of the range and ended its first trading day down 23% from its offering price.
  • TDH Holdings, founded in 2002 in Qingdao, Shandong Province, PRC with a single mission of becoming a premier producer of high quality pet food for pet owners in China and worldwide, priced at the midpoint of the range and gained 51% in first-day trading.
  • RYB Education, the largest early childhood education service provider in China, as measured by annual total revenues in 2016, according to a report prepared by Frost & Sullivan, priced above the range and produced a first-day gain of 40%.
  • Deciphera Pharmaceuticals, a clinical-stage biopharmaceutical company developing new drugs to improve the lives of cancer patients by addressing key mechanisms of drug resistance that limit the rate and durability of response of many cancer therapies, priced an upsized IPO at the high end of the range and ended its first day of trading up 4% from its offering price.
  • Nightstar Therapeutics, a leading clinical-stage gene therapy company focused on developing and commercializing novel one-time treatments for patients suffering from rare inherited retinal diseases that would otherwise progress to blindness, priced at the midpoint of the range and gained 71% in first-day trading.
  • NuCana, a clinical-stage biopharmaceutical company focused on significantly improving treatment outcomes for cancer patients by applying its ProTide" technology to transform some of the most widely prescribed chemotherapy agents, nucleoside analogs, into more effective and safer medicines, priced at the midpoint of the range and produced an 8% first-day gain.
  • Roku, the company that pioneered streaming to the TV, priced at the high end of the range and ended its first trading day with a 68% gain.
  • PQ Group Holdings, a leading global provider of catalysts, specialty materials and chemicals and services that enable environmental improvements, enhance consumer products and increase personal safety, priced below the range and declined 1% in first‑day trading.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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