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This year has seen more than its share of successful IPOs – and some giant flops. The extremes should have been expected, in a year with a record number of new public offerings. The second quarter was the best quarter for IPO activity in the last four years, with 62 companies raising $25 billion – and bringing in an average return of 30%. The tech and biotech sectors led the way.
IPO activity has continued in the second half, but with lesser returns. Tech startups have been underperforming the general market, returning about 5% against the S&P year-to-date average of 22%. Major disappointments like UBER, LYFT, and WeWork have garnered big headlines while causing bigger headaches.
The trials and tribulations of the IPO market doesn’t mean that there are no good buys out there – but investors will have to look harder. This is where TipRanks comes in. The database covers the stock markets, and more importantly, the data algorithms make sense of the raw information, sorting through the noise and making it possible to find the "strong buys." We’ve put together an example, using the Stock Screener filters to find three biotech IPOs that are getting plenty of love from Wall Street’s analysts.
Frequency Therapeutics (FREQ)
FREQ went public on October 3, with 6 million shares available at $14 per share. Another 900,000 shares were placed on option with the IPO underwriters. It was a solid performance, and raised $84 million, although it was at the low end of the initially discussed range. Frequency had originally intended to offer 6.7 million shares at $14 to $16 each. As with BNTX, Frequency’s IPO followed a round of successful private funding in the summer, that brought in $62 million.
Frequency’s leading drug candidate is FX-322, being researched as a treatment for hearing loss. The treatment is based on progenitor cell activation (PCA), a technique using the body’s own progenitor cells (a type of mature stem cell) to create healthy, functional tissue. FX-322 is a therapy candidate aimed at treatment of hearing loss; it is designed to regenerate the hair cells in the cochlea of the middle ear to restore natural hearing function. FX-322 is just entering Phase 2 studies now; Frequency also has a treatment for multiple sclerosis in the pipeline, but still at the discovery phase.
Anupam Rama, 4-star analyst with JPMorgan, has been quick to note the potential in Frequency’s pipeline and the science behind it. He writes, “While the company’s novel progenitor cell activation (PCA) platform has broad applicability potential, the near-to intermediate-term value driver of both the platform/company in our view is lead asset FX-322 for sensorineural hearing loss… We believe the phase 2a trial will provide important insights on the value of repeat dosing and effectiveness across the spectrum of patients, with FX-322 having blockbuster potential under multiple scenarios.”
Rama is confident in FREQ’s success, and shows it with his $25 price target – that implies a 66% upside. (To watch Rama's track record, click here)
FREQ has received 3 Buy ratings since its IPO, making its Strong Buy consensus rating unanimous. The stock sells for a bargain, at $15, but the $27.50 average price target suggests an impressive 84% upside potential. (See FREQ price targets and analyst ratings on TipRanks)
Based in Germany, BioNTech aims to bring a new paradigm to cancer treatment based on the individual nature of every illness. According to the company website, BioNTech operates on “the understanding that every cancer patient’s tumor is unique and therefore each patient’s treatment should be individualized.” The company went public just a month ago, and raised $150 million in its opening trading.
While that $150 million was a strong beginning, it was also somewhat disappointing. The company sold 10 million American depositary shares at $15 each, and reached a value of $3.39 billion. Management had originally planned to sell 13.2 million shares at $18 to $20 each – so the initial deal was about 60% of what had been intended. In its last private financing round, in July, BioNTech raised $325 million.
In the month of trading since the IPO, BNTX has performed well in the market. Shares are selling for $19.20, up 28% from the initial offer, and the company’s market cap has reached $4.34 billion. This solid market performance has attracted attention from JPMorgan’s 4-star analyst Cory Kasimov, who writes, "The company’s mRNA-based platform has garnered the most attention with proof-of-concept data (both mono and combo therapy) across two lead programs in melanoma: (1) an off-the-shelf vaccine that targets 4 common tumor associated antigens; and (2) a personalized neoantigen vaccine. BNTX's other programs could add a level complementarity and synergy, increasing the value of having multiple platforms under one roof. Further, we see the well-defined catalyst calendar over the next 3312+ months as a key positive, which could serve to attract and maintain investor attention."
Kasimov’s Buy rating for BNTX comes with a $23 price target, showing his confidence in a 19% upside. (To watch Kasimov's track record, click here)
In its short time as a public company, BNTX has attracted 4 analyst reviews, and all are on the buy side. This gives the stock a consensus rating of Strong Buy, and justifies the $21.75 average price target, and the 22% upside from the current share price of $17.70. (Find out how the Street’s average stock-price forecast for BioNTech breaks down)
Viela Bio (VIE)
Our third biotech IPO focuses on the treatment of autoimmune and inflammatory diseases, a class of diseases with serious effects on quality of life. Viela is pursuing a treatment approach based on targeting the underlying molecular causes of the diseases, and has three drugs in the pipeline, at various stages of development. Inebilizumab, the company’s main product, has completed Phase 3 studies as a treatment for neuromyelitis optica, a central nervous system disorder of the eyes and spinal cord. The drug is also in Phase 1 testing as a treatment for myasthenia gravis and desensitization in kidney transplants.
In the first week of October, Viela made its IPO of 7.9 million shares for $19 each. Trading commenced on October 3, and after an initial drop the stock has gained 38%. In the IPO, VIE raised $150 million; gains since have pushed the market cap up to $1.66 billion.
Guggenheim analyst Seamus Fernandez was favorably impressed by Viela’s approach and pipeline. In his recent note, Fernandez wrote: “…given the potential path to a 3-5x return over the next 3-5 years, we are making it our Best Idea. We believe Viela is a uniquely compelling biotech investment opportunity for several reasons…” The reasons he indicated include strong leadership, a high-potential pipeline, a large pool of potential patients, and a compelling stock valuation.
Fernandez bases his $44 price target on the potential market value of Inebilizumab, seeing a 34% upside to the stock from that one drug alone. (To watch Fernandez's track record, click here)
Fernandez sees more upside to Viela than most of Wall Street’s analysts, who has priced the company in the $25 to $35 range. Viela stock has pushed right up to that target – the shares are selling for $32.45, so the average price target of $33.67 leaves room for just a 3% upside. As Fernandez’ indicates, however, VIE may be worth more than that. The 4 reviews the stock has received since the IPO are all Buy, making the consensus rating a Strong Buy. (Discover how the overall price target for Viela Bio breaks down on TipRanks here)