by Tom Taulli | March 25, 2014 11:57 am
Even though the past couple days has seen a selloff of recent IPOs — especially for biotech companies — the quarter still remains fairly strong. In all, there have been 53 offerings, raising about $8.5 billion (according to Renaissance Capital). The average first-day return? A juicy 22%.
And the momentum should continue for new stocks. Consider that there are 118 companies in the pipeline for IPOs, and some of them are expected to be big offerings. Just some include Box — which just filed today — Weibo, King Entertainment (the maker of the Candy Crush Saga game) and GrubHub.
So, what were some of the hottest deals for the quarter? Here’s a look at the five best new stocks so far in 2014:
IPO Return: 81.2%
Varonis (VRNS) has a sophisticated software platform that helps enterprises to map, analyze, manage and migrate their data. The focus is mostly on unstructured data, such as spreadsheets, word processing documents, presentations, audio files, video files, emails, text messages and any other data created by employees.
As a result, Varonis can provide benefits like improved data governance, data security, archiving, file synchronization, enhanced mobile data accessibility and information collaboration. Let’s face it, enterprises are drowning in data. According to a report from IDC, the amount of digital information is expected grow at a compound annual growth rate of 39% from 2012 to 2020.
Thus, growth has been solid. Varonis has attracted 2,400 customers, and revenues grew $39.8 million to $74.6 million from 2011 to 2013. Although, the company has been losing money. Last year, the net loss was $7.5 million.
But in today’s IPO market, investors are really interested in top-line growth, not the bottom line — at least for now. That’s good news for new stocks like VRNS.
IPO Return: 83.4%
Castlight Health (CSLT) leverages Big Data to help enterprises provide low-cost healthcare to employees. A key part of this is using sophisticated algorithms and machine learning systems.
All in all, Castlight Health has been able to attract a sterling customer list, which includes 24 members of the Fortune 500. The client roster features names such as Walmart (WMT), Microsoft (MSFT) and Honeywell (HON).
Growth has been robust, but the revenue levels are still fairly small. From 2011 to 2013, revenues spiked from $1.9 million to $13 million. Last year, the net loss was substantial at $62.2 million.
But investors are taking the long view on things. After all, the market potential is massive. For 2014, U.S. spending on healthcare is projected to reach $3.1 trillion, roughly $620 billion of which is expected to come out of the coffers of employers.
IPO Return: 146.5%
Dicerna Pharmaceuticals (DRNA) is a biotech company that focuses on treatments for rare inherited diseases, such as for those affecting the liver or for cancers. To do this, company has developed a proprietary RNA interference (RNAi) platform. This year, it plans to begin clinical trials of its lead candidate.
In terms of the go-to-market strategy, Dicerna has a two-pronged approach. For rare-disease drugs, the company will put together a small sales force. Keep in mind that these types of treatments get government subsidies.
As for the oncology drugs, Dicerna will rely on a partnership strategy. And yes, the company already has a major partner, Kyowa Hakko Kirin.
IPO Return: 147.1%
The runner-up on our list of best new stocks is Auspex Pharmaceuticals (ASPX). This is a biotech operator that develops drugs for orphan diseases, which are those that impact fewer than 200,000 people in the U.S. For the most part, the focus is on hyperkinetic movement disorders. Examples include chorea associated with Huntington’s disease and Tourette syndrome.
Right now, the company’s lead drug is SD-809, a chorea treatment which is currently in Phase 3 registration. The only other competing, FDA-approved drug is Tetrabenazine. Auspex’s version is expected to allow for less dosing and better results.
If everything goes fine, the drug could hit the market in by 2015.
At the same time, the company is in a Phase 2 trial for another use of SD-809 — that is, for the treatment of tardive dyskinesia. The data will be available in the middle of next year.
IPO Return: 162.1%
Ultragenyx Pharmaceutical (RARE) is biotech operator that focuses on rare diseases. The initial target is on serious, debilitating metabolic genetic diseases.
Over the past few years, the company has obtained in-licensed treatments for five different disorders. And they will hit Phase 1 or Phase 2 clinical trials this year. The company thinks this approach will be quicker — and cheaper.
A key to Ultragenyx is biologics, which involves monoclonal antibody and enzyme replacement therapies. Enzymes are used to process normal cell functions. So, if there is a breakdown, the results can be devastating. But Ultragenyx believes it has an effective way to replace those that malfunction. And with a return of more than 160%, RARE earns the top spot for best new stocks of 2014.
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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