The IPO Buzz: A Pullback, Biotechs and Hope

It’s become quite apparent that the stock market and the biotech sector have taken their toll on IPOs. Nevertheless, the new-issue calendar is far from dead.

Let’s recap what has been happening in the financial markets, as measured by the popular indexes. The U.S. stock market has slipped into a correction (a pullback of 10 percent or more from the previous high), but it’s far from a bear market. Note the following:

The Stock Market

  • The Dow Jones Industrial Average closed on Aug. 21, 2015, at 16,459.75, DOWN 10.3 percent from 18,351.36, its closing high set on May 19. You need a close of 14,681 for a bear market (that’s a 20 percent pullback from a previous high). On Friday, Oct. 2, the Dow closed at 16,472.37.
  • The S&P 500 Index closed on Aug. 24 at 1,893.21, DOWN 11 percent from 2,128.28, its closing high set on July 20. You need a close of 1,703 for a bear market. On Friday, the S&P 500 closed at 1,951.36.
  • The NASDAQ Composite Index closed on Aug. 24 at 4,526.25, DOWN 13.2 percent from 5,218.86, its closing high set on July 20. You need a close of 4,174 for a bear market. On Friday, the NASDAQ closed at 4,707.77.
  •  The Biotech Sector

It has been well documented over the years that the IPO market has been driven by industrial sectors. Who can forget the Internet bubble of 1998 to 2000?

This year’s IPO traffic has come from biotechs. Since the beginning of 2015, 126 IPOs have been priced, excluding unit offerings consisting of common stock and warrants. The biotech sector accounted for 39 IPOs. Coming in second was the medical supply sector with 15 IPOs. And the biotech sector has slipped into a bear market. Consider the following:

  •  The NYSE ARCA Biotech Index (BTK) closed on Aug. 20 at 3,856.04, DOWN 13 percent from 4,431.87, its closing high set on July 17. You need a close of 3,564 for a bear market – and that happened on Sept. 29, when the Biotech Index closed at 3,303.47. On Friday, the Biotech Index closed at 3,541.98.

Rough Ride for IPOs

This brings us to the IPO market.

Last week’s calendar was a reflection of stock market conditions. Nevertheless, five deals did get priced. Three were biotechs. All five of last week’s IPOs had to be cut in size to find enough interest to get them out the door. By and large, it didn’t work. They had an average opening-day loss of 3.12 percent.

This week might be different.

Flash and Cash   

The IPO calendar for the week of Oct. 5 lists 10 deals. They expect to raise nearly $2.4 billion. But six of those deals are from the biotech sector. Time will tell how they will work out.

There is one deal, however, that reportedly, is attracting interest. It is a non-biotech IPO; the company is out of Silicon Valley.

Pure Storage (PSTG – proposed), based in Mountain View, California, is a provider of enterprise storage solutions. The company offers flash enterprise arrays for high-performance workloads, including server consolidation, virtualization desktop, database and cloud computing. Pure Storage sells storage solutions based on flash memory instead of a disk.

Founded in 2009, the company has about 1,100 employees.  Bankers expect to offer 25 million shares at $16 to $18 each to raise $425 million. The shares are expected to trade on The New York Stock Exchange on Wednesday morning, Oct. 7, 2015.

(For more information, please click here: Pure Storage)

Food, Drugs and Money

The forward calendar is far from dead.

Consider the two mentioned below, which are on next week’s calendar. And there are other household names waiting in the IPO wings.

Week of Oct. 12: 

Albertsons Companies (ABS – proposed), based in Boise, Idaho, is one of the largest food and drug retailers in the United States. Bankers plan to price 65.3 million shares at $23 to $26 each to raise $1.6 billion.

First Data (FDC – proposed), based in New York City, believes it is the global technology leader in providing payment technology and services solutions. Bankers plan to price 160 million shares at $18 to $20 each to raise $3 billion.

At press time, there were three IPOs on next week’s calendar. But it is early – and anything can happen.

Stay tuned.

Disclosure: Neither the author nor anyone else on the staff has a position in any stocks mentioned, nor do we trade or invest in IPOs. The author and staff do not issue advice, recommendations or opinions.