How an IPO gets its price: Lycia's $18 offer, from price range to final prospectus

Who decides what a new share costs? In a US initial public offering, the company does, on the underwriters' recommendation, after they have gathered indications of interest from investors. Lycia Therapeutics, a clinical-stage biotechnology company based in South San Francisco, shows how that works. Its preliminary prospectus, dated 20 October 2026, offered 14,700,000 shares at an expected price of $16.00 to $18.00 each. Its final prospectus, dated 22 October 2026 and filed under Rule 424(b)(4), set the price at $18.00 for 17,640,000 shares. This article does not say whether to buy any IPO.

Before the Securities and Exchange Commission (SEC) declares a registration statement effective, the underwriters, the investment banks that manage and sell the deal, typically gather indications of interest from prospective investors, according to the SEC's Office of Investor Education and Advocacy. Those indications form the order book: a record of how many shares each investor would buy, and at what price. The underwriters use it to recommend a price. Lycia's deal had four joint book-running managers, Jefferies, TD Cowen, Evercore ISI and Guggenheim Securities, with LifeSci Capital as passive book-running manager, its 424B4 shows.

Deutsche Boerse's glossary describes this process and contrasts it with a fixed-price offering: bookbuilding, it says, lets institutional and other large investors take part in pricing. In its account, the gap between the top and bottom of a price range may reach 10 to 15 per cent, and the subscription period normally runs for eight to ten days. The book runner can favour long-term investors when it hands out shares, which the glossary says can support a steady share price.

The SEC's investor bulletin describes pricing as a mix of market conditions, analysis and negotiation. A higher price raises more money for the company, and underwriters are typically paid a percentage of the offering price. But the banks also have to sell the shares to their own clients, so they want a price those clients find attractive. Underpricing gives first buyers a discount and lifts demand. If the shares then jump in early trading, which the bulletin calls a bump, those investors may be pleased, while the company may feel it could have raised more.

Lycia's final prospectus says its price was set through negotiations between the company and the underwriters' representatives. The factors it lists include prevailing market conditions, the company's financial information, valuations of companies the parties consider comparable, estimates of its business potential and its stage of development. The company also says it cannot promise that the shares will trade at the offering price, or that an active market will develop.

SEC Rule 430A explains how a registration statement can become effective before the price is known. Under the rule, the prospectus in an effective registration statement may leave out the offering price, underwriting discounts, proceeds, delivery dates and other terms that depend on the price. Those details must then appear in a prospectus filed under Rule 424(b). If that prospectus is not filed within fifteen business days after effectiveness, the information has to go into an effective post-effective amendment instead. Once filed, the information counts as part of the registration statement from the moment it became effective.

Lycia's paperwork uses Rule 430A. The cover of its 20 October 2026 preliminary prospectus warned that the information was incomplete and could change, and that the shares could not be sold before the registration statement became effective. The registration statement included an undertaking covering information left out in reliance on Rule 430A and later filed in a Rule 424(b) prospectus. The final prospectus was filed on EDGAR on 23 October 2026 under Rule 424(b)(4). The SEC's bulletin notes that final prospectuses usually appear on EDGAR as 424B3 or 424B4 filings and carry the final offering price.

In total, the 424B4 shows an offering of $317,520,000 at the $18.00 price, underwriting discounts and commissions of $22,226,400, and proceeds to Lycia of $295,293,600 before expenses. The company estimates its other offering expenses at about $4.6m. The prospectus says delivery of the shares is expected on or about 26 October 2026.

Deutsche Boerse defines the greenshoe as an agreement under which the issuer provides a reserve of extra shares for the syndicate to sell at the original price if demand is well above expectations; the glossary says it helps stabilise the share price once trading starts. Lycia's version is a 30-day option for the underwriters to buy up to 2,646,000 more shares at the offering price, less underwriting discounts, its 424B4 says. The preliminary prospectus had set the option at 2,205,000 shares. If the option is exercised in full, Lycia says underwriting discounts would total $25.6m and its proceeds before expenses $339.6m.

The option can be exercised only if the underwriters sell more shares than the number on the prospectus cover. Lycia's prospectus describes how underwriters pair that option with short sales. Covered short sales, up to the size of the option, can be closed by exercising it or by buying shares in the market, and the underwriters weigh the market price against the option price.

Naked short sales beyond the option must be bought back in the market, and the prospectus says they are likelier when underwriters fear downward pressure on the price. The SEC's bulletin warns that once underwriters stop supporting the trading price, for example by buying shares, it may fall well below the offering price.

Underwriters often place most IPO shares with institutional and wealthy clients, the SEC's bulletin says, and individual investors more commonly buy once the shares trade. Some underwriters discourage flipping, the quick resale of IPO shares, by refusing allocations to clients who have done it before, although federal securities law does not ban it. Lock-up agreements, which typically run for 180 days, keep existing holders from selling. In Lycia's case, its officers, directors and substantially all stockholders agreed to lock-ups that expire 180 days from the prospectus date, the 424B4 says, though Jefferies and TD Securities can release them early.