by Tom Taulli | June 26, 2014 8:30 am
The prospects for IPOs didn’t look bright at the start of the second quarter. Small-cap stocks hit a great deal of turbulence, especially in the go-go biotech and cloud industries.
In fact, to get new stocks off the ground, Wall Street investment banks had to lower the price ranges on IPOs and cut back on the number of shares being offered.
Somewhere in the middle ground of banks’ tactics working and fears being overblown, Q2 turned out to be a standout one for new stocks. We saw 65 public offerings during the period, and they posted an average return of nearly 25%. Among these new stocks, only 19 generated negative returns.
On the other side of things, Q2′s winners were winners by a mile, with five of the best IPOs for the quarter each returning more than 70%. Here’s a look at five of the most outstanding new stocks from Q2:
Biotech firms dug out a place among some of the top IPOs for the quarter. Notable among them is Kite Pharma (KITE), which is a clinical-stage operator. Kite’s drugs leverage a patient’s own immune system to attack diseases, such as to eradicate cancer cells. At the core of this is eACT, which involves complex genetic engineering of T cells.
As a sign of the strength of this approach, Kite is collaborating with the Surgery Branch of the National Cancer Institute for its two lead candidates. The drugs are for the treatment of relapsed/refractory lymphomas and leukemias.
Kite’s founder and CEO is Arie Belldegrun, an experienced former executive from companies like Agensys and Cougar Biotechnology, and a former researcher at the NCI, where he focused on oncology and immunotherapy.
At its onset, Alder Biopharmaceuticals (ALDR) didn’t look like it would make any list of top new stocks, managing to post a meager 0.3% return on its first day of trading.
Since then, ALDR has been on fire.
Alder is building a proprietary antibody platform, MabXpress, to better target diseases not addressed by antibodies. ALDR’s lead drugs treat rheumatoid arthritis and provide for migraine treatments, both massive market opportunities.
Alder also has a strong backing, as it has forged a major collaboration with Bristol-Myers Squibb (BMY) for its drug Clazakizumab, for rheumatoid arthritis.
The quarter saw only a handful of cloud IPOs, but there was no lack of appetite for these new stocks, as we saw with Zendesk (ZEN).
Zendesk has built a solid business to provide customer service via the cloud, such as knowledge bases, email, chat and social media.
Growth certainly is in play here, as from 2012 to 2013, revenues jumped from $38.2 million to $72 million.
ZEN also has been a magnet for new customers, boasting a base of more than 42,000. Meanwhile, about 70% of the qualified leads come from organic search, customer referrals, and other unpaid sources.
However, Zendesk also suffered a $22.6 million loss in 2013, so the ZEN clearly has some room to go in solidifying its business.
Vital Therapies’ (VTL) product is the ELAD System, which is a cell-based bio-artificial liver support system that operates outside a person’s body and helps to regenerate the patient’s liver. Even if the liver does not become healthy, ELAD will provide more time for a transplant — important considering the long waiting lines for such a procedure.
The drug has received the orphan designation in the U.S. and Europe (acute liver disease impacts at least 60,000 per year). This means the company is eligible for valuable tax credits as well as seven years of market exclusivity in the U.S. and 10 years in Europe.
Vital currently is enrolling patients for Phase 3 clinical trials.
The quarter saw just one restaurant offering.
Apparently, that’s all we needed.
Zoe’s Kitchen (ZOES), which was founded in 1995, is a fast-casual restaurant with a Mediterranean theme (“zoë” means “life” in Greek). The menu mostly offers dishes that are made from scratch and that are preservative- and additive-free. Zoe’s average per-customer spend is $9.57.
The returns are unsurprising given the breakneck growth Zoe’s has experienced so far. In Q1 alone, revenues surged more than 47% to $46.3 million, comparable restaurant sales increased by 5.7%, and the company even managed to post $3.8 million in adjusted EBITDA.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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