Investing in IPO stocks can be fun, but also risky. There can be a scarcity of information about a brand new equity. And sometimes the underwriters intentionally lowball the value of a company, in order to hype the stock (and reward the bank's clients who bought shares on the cheap). Nonetheless, as we shall see, there were some fantastic returns in the IPO market this year, even for ordinary investors buying on the first day.
I am measuring stock returns from the opening trade of the stock at its initial public offering, to market close on Dec. 20. Surprisingly, a lot of unknown biotechs dominate my top 10 list. And three stocks on the list had "broken IPOs," which is when the market return on the first day is under the price set by the underwriters.
Without further ado, here are the top 10 IPOs of 2019:
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10. Avedro (up 98%)
Avedro went public in February at $14 a share. The company has a corneal remodeling platform for eye surgery approved by the U.S. Food and Drug Administration.
The stock was priced at $14 a share by the underwriters, but on the first day of trading, the market was unimpressed. The stock opened at $11.60 on the first trade. Nonetheless, early investors made out quite well when Avedro was acquired by Glaukos earlier this year. People who bought shares in Avedro on the opening day made a 98% return in less than a year.
9. BioNTech (up 111%)
The strangely named BioNTech (BNTX 0.58%) went public in October at $16 per share. This vaccine biotech specializes in messenger RNA (mRNA). It's a European drug company and a competitor to Moderna in this space. Early investors in BioNTech include Pfizer and Sanofi.
BioNTech's stock opened at $16.50 and fell on the first day. But after two months, this "broken IPO" is up more than 100% for people who bought the stock at its opening price.
8. RAPT Therapeutics (up 123%)
RAPT Therapeutics (RAPT 3.85%) went public in October, and its first trade was at $12.25 a share. Two months later, the company trades at over $27.
It's an immunology-based biotech focused on oral medications for inflammation and cancer. The company has two drugs in clinical trials: FLX475 (cancer) and RPT193 (inflammation). Both drugs are in the middle of phase 1 trials.
RAPT has a $529 million market capitalization and $48 million in cash. The company has no earnings, no revenue, and no long-term debt.
7. Aprea Therapeutics (up 131%)
Aprea Therapeutics (APRE) also debuted in October. Priced at $15 a share, the first trade was for $15.46. Two months later, shares are almost $36. Aprea now has a market cap of $752 million.
This biotech works on novel cancer therapies. Its drugs reactivate a mutant tumor suppressor protein (p53), also known as the "guardian of the genome." Aprea has a drug, APR-246, it's testing in multiple indications. There's an ongoing phase 3 trial for myelodysplastic syndromes (MDS), a rare disease of bone marrow failure. The company also has a phase 2 trial for a type of cancer called acute myeloid leukemia (AML), and a phase 2 trial for MDS/AML post-transplant maintenance.
6. Turning Point Therapeutics (up 160%)
Turning Point Therapeutics (TPTX) was one of those IPOs priced too low by the underwriters. Valued at $18 a share, the stock immediately went up 35% on the first trade. But opening-day investors have also profited. From its first trade back in April, the stock is now up to $63 a share, a very nice 160% return in less than a year.
Turning Point is another biotech that specializes in the oncology space. The company's drugs are kinase inhibitors that disrupt the signaling that leads to cancer cell growth. Right now the company has three drugs in clinical trials. Repotrectinib, the furthest along, is in a phase 2 trial for non-small cell lung cancer and solid tumors.
5. Palomar Holdings (up 200%)
Palomar Holdings (PLMR -2.03%) is a small insurance company that provides policies for catastrophic risks and natural disasters. Valued at $1.3 billion today, the stock was priced at $15 a share and opened at $18.50. It's now up 200% for people who bought at the open.
4. Applied Therapeutics (up 207%)
Applied Therapeutics (APLT 1.18%) disappointed on its first day on the market. Its underwriters priced the equity at $10 a share, but it opened at $8.04 when it started trading in May. Patient shareholders have been rewarded, however, as the stock now sits at $24.72.
Applied is a biotech that focuses on drugs that failed their first clinical trials. Using updated science, the company strives to increase the selectivity and potency of these molecules, so bad side effects are minimized and efficacy improves. Applied's lead compound is in phase 2 trials for diabetic cardiomyopathy, a disorder of the heart muscle in people with diabetes.
3. InMode (up 207%)
InMode is an Israeli-based medical technology company with a line of minimally invasive surgical tools for aesthetic procedures. Shares were priced at $14 by the underwriters in August, and the stock opened below that at $13.50 a share. However, early investors have done very well. The stock is up 207% in four months.
2. NextCure (up 276%)
Biotech investors might be familiar with the wild gyrations of NextCure (NXTC 4.65%). On Nov. 5, the stock jumped 225% in one of those one-day moves that thrill biotech investors. A few days later, the stock crashed 55% in one of those one-day moves biotech investors have nightmares about. When it debuted in May, the stock was priced at $15 a share, opening at $15.55.
NextCure is a biotech that is focused on drugs for cancer and other immune-related diseases. The company has a phase 2 drug in clinical trials. Despite the roller coaster ride, investors who bought on the first day are up 276%.
1. Karuna Therapeutics (up 341%)
The top IPO for 2019, Karuna Therapeutics (KRTX 0.03%), has had an amazing run. The stock was priced at $16 a share, and opened at $18.50. Since then it's been a wild ride, all the way up to $81 a share.
Unlike the many biotechs that target cancer, Karuna is focused on mental illness. Its lead compound, KarXT, is in phase 2 trials for psychosis caused by schizophrenia. The same drug is in phase 1 trials for Alzheimer's disease.
| IPO | Underwriter Share Price | 1st Day Share Price (Open) | 1st Day Share Price (Close) | December 20 Price (Close) | % Gain From 1st Day Opening Price |
|---|---|---|---|---|---|
| Karuna Therapeutics | $16 | $18.50 | $20.02 | $81.71 | 341.68% |
| NextCure | $15 | $15.55 | $19.90 | $58.55 | 276.53% |
| Applied Therapeutics | $10 | $8.04 | $9.40 | $24.72 | 207.46% |
| InMode | $14 | $13.50 | $13.57 | $41.50 | 207.41% |
| Palomar | $15 | $18.50 | $18.99 | $55.51 | 200.05% |
| Turning Point Therapeutics | $18 | $24.25 | $28.90 | $63.25 | 160.82% |
| Aprea Therapeutics | $15 | $15.46 | $20.50 | $35.82 | 131.69% |
| RAPT Therapeutics | $12 | $12.25 | $13 | $27.42 | 123.84% |
| BioNTech | $16 | $16.50 | $14.24 | $34.97 | 111.94% |
| Avedro | $14 | $11.60 | $12.29 | $22.99 | 98.19% |
While these stocks have had fantastic runs in 2019, almost all of them are still small caps and have plenty of room to grow. (BioNTech has a $7.9 billion market cap, so it's quite a bit larger than the rest of this group). Palomar, the disaster insurance specialist, looks interesting, with 61% revenue growth and a profit margin of 4%. InMode has even better numbers, with 57% revenue growth a profit margin of 30%.
Among the biotechs, Aprea, with a drug in phase 3 trials and a market cap under $1 billion, is a very promising stock. While it's unprofitable and has no revenues, the company's advanced pipeline makes it stand out, and its focus on P53 is exciting.
Overall it was a highly successful year in the IPO market, particularly for some of these un-hyped names that flew under the radar.
