The IPO Buzz: Cover Story

Rx for a Rich Return
OncoMed Pharmaceuticals specializes in developing cancer treatments that target a tumor’s “cancer stem cells.” As the company prepared to go public, the prospectus gave potential investors some timely and targeted information as well.
 
Glance down the cover page of OncoMed’s prospectus and you’ll find this pullout: “Certain of our existing investors and their affiliated entities have agreed to purchase an aggregate of 817,647 shares of our common stock in this offering at the initial public offering price.”
 
An earlier version of its prospectus (“red herring” in Wall Street jargon) stated: “Certain of our existing investors and their affiliated entities, including GlaxoSmithKline LLC, one of our collaborators, have indicated an interest in purchasing an aggregate of up to approximately $15.0 million in shares of our common stock in this offering at the initial public offering price.”
 
OncoMed priced its IPO of 4.8 million shares at $17 each on Wednesday evening, July 17. The stock opened at $28.16 Thursday morning, UP $11.16 per share from its initial offering price.
 
Yes, the interest of Big Pharma – in this case, GlaxoSmithKline – in this biotech IPO was stated clearly on the cover page of its prospectus early in the game. For those willing to read the cover, it was like finding the road map to a gold mine.
 
Let’s go hunting for similar deals from this week’s IPO calendar.
 
Inner Circle
The saying that “it’s not just what you know, it’s who you know” applies to IPOs as much as it does to people. In the case of four biotech IPOs on this week’s calendar, the cover page of the prospectus shows that an inner circle of partners or stockholders is interested in buying the newly minted stock. Sometimes the prospectus names a player in that inner circle – and sometimes not.
 
Agios Pharmaceuticals (AGIO – proposed) develops small-molecule treatments for cancer and inborn errors of metabolism. The pullout on the cover page of its prospectus stated: “An affiliate of Celgene, our cancer metabolism strategic alliance partner, has agreed to purchase $12.75 million of our common stock in a separate private placement concurrent with the completion of this offering at a price per share equal to the public offering price.”
 
The Deal: Bankers plan to price 5 million shares at $14 to $16 each on Tuesday evening to trade Wednesday morning.
The bankers: Joint-lead managers: J.P. Morgan and Goldman Sachs.
Co-managers: Cowen and Leerink Swann
 
Cellular Dynamics International (ICEL  – proposed), founded by stem cell pioneer James Thomson, intends to develop lines of stem cells to build a biobank for global research. The pullout from the cover page of its prospectus stated: “Certain of our existing shareholders and certain affiliates of us, certain existing shareholders and our directors have indicated an interest in purchasing shares of our common stock in this offering at the initial public offering price. We have requested that the underwriters allocate shares in this offering to these investors. It is not currently anticipated that the aggregate purchase price of the shares to be purchased by these investors in this offering will exceed $10 million.”
 
The Deal: Bankers plan to price 3.85 million shares at $12 to $14 each on Tuesday evening to trade Wednesday morning.
The bankers: Lead manager: J.P. Morgan. Co-managers: Cowen and Leerink Swann
 
Conatus Pharmaceuticals (CNAT – proposed) is a biotech company focused on developing treatments for liver disease. A pullout from the cover page of its prospectus stated: “Certain of our current stockholders have indicated an interest in purchasing an aggregate of approximately $10.0 million of shares of our common stock in this offering.”
The Deal: Bankers plan to price 5 million shares at $10 to $12 each on Wednesday evening to trade Thursday morning.
The bankers: Joint-lead managers: Stifel and Piper Jaffray. Co-managers: JMP Securities and SunTrust Robinson Humphrey.
 
Onconova Therapeutics (ONTX – proposed) is a developer of small-molecule cancer therapies. A pullout from the cover page of its prospectus stated: “Baxter Healthcare SA, one of our stockholders and collaborators, and our chairman of the board of directors, as well as certain other of our existing stockholders, including certain of our directors, have indicated an interest in purchasing up to an aggregate of $26.0 million of shares of our common stock in this offering at the initial offering price.”
 
The Deal: Bankers plan to price 4.6 million shares at $12 to $14 each on Wednesday evening to trade Thursday morning.
The bankers: Joint-lead managers: Citigroup and Leerink Swann. Co-managers: Piper Jaffray and Janney Montgomery Scott.
 
The Yield Pipeline
The calendar doesn’t live by biotech IPOs alone. This week, a couple of energy deals could attract investor interest as well. Anyone who delves into the prospectus of either deal will find some golden information about yield.
 
Marlin Midstream Partners, LP (FISH  – proposed) is a Houston-based limited partnership formed to own and operate midstream energy assets. The company provides natural gas gathering, transportation, treatment and processing services.
 
Bankers plan to offer 6.25 million common units at $19 to $21 each. The IPO is expected to be priced on Thursday evening and trade Friday morning on the NASDAQ Global Market. The joint-lead managers are: Stifel, Baird and Oppenheimer. The co-managers are: Janney Montgomery Scott, Wunderlich Securities, SOCIETE GENERALE, Ladenburg Thalmann, Stephens, Drexel Hamilton, Natixis, Rabo Securities and RB International Markets (USA).
 
The pullout from Marlin’s prospectus stated: “Under our current cash distribution policy, we intend to make a minimum quarterly distribution to the holders of our common units and subordinated units of $0.35 per unit, or $1.40 per unit on an annualized basis, to the extent we have sufficient available cash after the establishment of cash reserves and the payment of costs and expenses, including the payment of expenses to our general partner.” That works out to be a 7 percent yield, based on going public at the mid-point of the IPO’s filing range.
 
(Note: On July 19, 2013, the dividend yield for the S&P 500 Index was 2.10 percent.)
 
Phillips 66 Partners LP (PSXP  – proposed) is Houston-based limited partnership formed by Phillips 66 (PSX) to own, operate, develop and acquire primarily fee-based crude oil, refined petroleum product and natural gas liquids pipelines and terminals and other transportation and midstream assets.
 
Bankers plan to offer 15 million common units at $19 to $21 each. The IPO is expected to be priced on Monday evening and trade Tuesday morning on the New York Stock Exchange. The joint-lead managers are: J.P. Morgan and Morgan Stanley. The co-managers are: BofA Merrill Lynch, Barclays, Credit Suisse, Deutsche Bank Securities, Citigroup, RBC Capital Markets, RBS, DNB Markets, Mitsubishi UFJ Securities, Mizuho Securities and PNC Capital Markets.
 
The pullout from its prospectus stated: “Under our current cash distribution policy, we intend to make a minimum quarterly distribution to the holders of our common units and subordinated units of $0.2125 per unit, or $0.85 per unit on an annualized basis, to the extent we have sufficient available cash after the establishment of cash reserves and the payment of costs and expenses, including the payment of expenses to our general partner.” That works out to be a 4.25 percent yield, based on going public at the mid-point of the IPO’s filing range.
 
This brings us to next week. At press time, there were two IPOs on the calendar for the week of July 29. They expect to raise about $850 million. That figure could easily expand. In today’s IPO market, the calendar can fill up quickly.
 
Stay tuned. 
 
 
Disclosure: Neither the author nor anyone else on the IPOScoop.com staff has a position in any stocks mentioned, nor do we trade or invest in IPOs. The author and IPOScoop.com staff do not issue advice, recommendations or opinions.

The IPO Buzz: Cover Story

It should come as no surprise to any investors who read the cover page of each of those prospectuses.
 
Bankers priced four IPOs on Thursday evening, Nov. 9. Each made their debut the following morning. Two deals were priced below their original filing ranges, while two were sold above their original filing range.
 
Priced Below Range
The two deals that were priced below range were: ACA Capital Holdings (NYSE: ACA), a New York City-based provider of financial guaranty insurance and asset management for credit derivatives, and Thermage (NASDAQ: THRM), a Hayward, California-based medical devices company providing non-invasive treatment of wrinkles.
 
Each deal gave off early warning signals of a troubled IPO.
 
ACA Capital’s warning signal:
  • Oct. 20: Filed to price 12.2 million shares at $15 to $17 each.
  • Nov. 2: Cut terms to price 10.8 million shares at $15 to $17 each.
  • Nov. 9: Priced 6.9 million shares at $13 each.
  • Nov. 10: Closed opening day at $12.85 per share, down 1.15 percent from its initial offering price.
 
Thermage’s warning signal:
  • Oct. 24: Filed to price 6 million shares at $11 to $13 each.
  • Nov. 9 (a.m.): Cut terms to price 6 million shares at $8 to $9 each.
  • Nov. 9 (p.m.): Priced 6 million shares at $7 each.
  • Nov. 10: Closed opening day at $6.75 per share, down 3.57 percent from its initial offering price.
 
Wall Street Axiom: Cut a deal, cancel my order.
 
Priced Above Range
The two deals that were priced above range were: Capella Education (NASDAQ: CPLA), a Minneapolis, Minnesota-based online post-secondary education services provider, and
Metabolix (NASDAQ), a Cambridge, Massachusetts-based biotechnology company developing environmentally sound alternatives to petrochemical-based plastics, fuels and chemicals.
 
There were no early signs that each deal was turning into a “hot issue’” until their final offering terms were announced.
 
Capelle Education:
  • Oct. 27: Filed to price 4 million shares at $17.50 to $19.50 each.
  • Nov. 9: Priced 4 million shares at $20 each.
  • Nov. 10: Closed opening day at $25.11 per share, up 25.6 percent from its initial offering price.
Metabolix:
  • Oct. 20: Filed to price 5.8 million shares at $12 to $14 each.
  • Nov. 9: Priced 6.8 million shares at $14 each.
  • Nov. 10: Closed opening day at $15.52 per share, up 10.9 percent from its initial offering price.
 
Wall Street Axiom: Increase a deal, double my order.
 
Note: There’s a developing trend in today’s IPO market. When deals are increased, bankers have been adding more shares to the deal rather than bumping up the price.
 
A syndicate manager, speaking on condition of remaining anonymous, said institutions are extremely price-sensitive. As an example, they say they will pay $15 per share -– not $15.01. To increase a deal to meet a large demand from buyers, more shares are being added rather than raising the offering price.
 
Naturally, that increases the float and reduces the aftermarket volatility.
 
But that’s Wall Street for you.
 
Coming Attractions: NYMEX and Hertz
This week features two major offerings: NYMEX (NYSE: NMX), the New York City-based energy and commodity futures exchange, and Hertz Global Holdings, the Park Ridge, New Jersey-based car rental agency.
 
The NYMEX deal is said to be coming to town with all the fanfare of a three-ring circus. With plans to offer 6 million shares in a price range of $48 to $52 each, the NYMEX deal -– in the consensus opinion of IPO professionals — should trade at a $5-per-share premium. That is a 4-Star SCOOP rating.
 
The Hertz deal, according to IPO professionals, is said to resemble what’s left after the circus leaves town. With plans to offer 88.3 million shares at a price range of $16 to $18 each, the Hertz deal -– in the consensus opinion of IPO professionals -– is expected to trade flat. That is a 1-Star SCOOP rating.
 
For a clue to see how each might trade in the aftermarket, look at the cover of their prospectuses.