Credit: Shutterstock photoSecond Sight Medical ( EYES ) became the year's sixth IPO to double on Wednesday, and its 122% gain gives it the #3 spot for highest first-day pop of 2014. The last IPO to spike over 100% on its first day of trading was ReWalk Robotics ( RWLK ) in September. Second Sight saw high volume on its debut, trading 1.4x its float. Its 122% gain reflects the exciting opportunities of such a unique medical device, but carries inherent risks for post-IPO investors.
Supporting the pop
- First-of-its-kind for the blind : Second Sight offers a first-of-its-kind product for restoring partial vision to blind patients with Retinitis Pigmentosa.
- Massive potential for all blindness : The company is currently developing a device modification that could potentially treat all causes of blindness, and estimates that it will begin clinical trials in late 2016.
- The billionaire backer : Alfred Mann, Chairman and CEO of MannKind ( MNKD ), is the largest shareholder. Investors could be encouraged by the persistence he showed in funding MannKind's Afrezza diabetes treatment through its approval.
- ReWalk comparisons : Investors appear to have an appetite for IPOs building the bionic being. ReWalk Robotics went public in September and trades 128% above its IPO price. The company's recently-approved exoskeleton for paraplegia had been installed in just 81 cases at the time with $1.8 million of LTM sales, putting it in a similar place commercially as Second Sight (about 90 implants; $2.4 million LTM sales).
- An IPO sweetener : If an investor holds Second Sight's stock for two years and the stock price is $9 or less, they will receive one additional share for free. That long term incentive right decreases to nothing as the stock price approaches $18 at the 2-year mark.
Risks
- Early stage commercially : Second Sight claims that it has only implanted about 90 of its Argus II units. It shows a negative gross margin on the units it does sell, and had $20 million in operating losses in the last twelve months. Most insurers do not cover the device. Retinitis Pigmentosa is an uncommon disease - the company estimates that its target market in the US is less than 25,000 and less than 42,000 in Europe.
- Jackpot potential is a long way off : Expanding the device's indication to treat all forms of blindness will require more than a new series of clinical trials. Second Sight must first develop a way to bypass stimulating the optic nerve and instead target the visual cortex of the brain.
- When sweetener turns sour : The long term incentive right applies to all shareholders who own the stock after 90 days of the IPO and is not transferrable after that point, setting up a potential selling event in February. The sweetener is triggered only if the shareholder has held the stock for two years and if the price averages less than a 100% gain, meaning an investor in March faces increasing dilution as the stock price declines.
- A long way to fall : Second Sight has the third highest first-day pop of 2014. The #1 position belongs to January IPO Dicerna Pharmaceuticals ( DRNA ), which now trades 34% below its offer price (-78% from first day close). Castlight Health ( CSLT ) is #2, and it has a 31% loss from the IPO (-72% from first day close).
- More drugs preventing blindness : Five eye disease biotechs have gone public in 2014 (AAVL, AGTC, PFNX, OCUL, EBIO) and a sixth recently filed (ITEK), as more pharmaceuticals target ways to prevent blindness.
IPO Market snapshot
So far this year, 256 IPOs have raised about $82 billion, averaging a first-day pop of 12.9%. The Renaissance IPO Index, a market cap weighted basket of newly public companies designed to represent the US IPO market, has gained 10% year-to-date. Renaissance Capital's IPO ETF tracks the index, and its top holdings include Alibaba (BABA), Zoetis (ZTS), Twitter ( TWTR ), Hilton (HLT) and Workday (WDAY).
The article Second Sight sees double: Year's 6th IPO to soar 100% on day one originally appeared on IPO investment manager Renaissance Capital's web site renaissancecapital.com.
Investment Disclosure: The information and opinions expressed herein were prepared by Renaissance Capital's research analysts and do not constitute an offer to buy or sell any security. Renaissance Capital, the Renaissance IPO ETF (symbol: IPO) or the Global IPO Fund (symbol: IPOSX) , may have investments in securities of companies mentioned.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
