Health Care IPOs Line Up At An Open Door, And The Public Equity Market Is Buzzing With Activity

This time last year, it was exciting that investors were still interested in health care, despite a stall in the overall equity market. Since then, health care companies have been entering the public market at a steady pace, and in the past month that pace has picked up. Between January 16 and February 15, 2005, three times as many new IPOs were filed with the SEC, compared with the year-ago period. The number of IPOs that actually got priced did not break any records, but it has been at least a few years since so many health care companies proposed or closed a public offering during one four-week period.

Seven IPOs were priced, three within range and four below or at the bottom of their ranges, and 15 new IPOs were filed, while 14 secondaries were priced and two more were filed. Although there has been a rush of activity, in many recent offerings price estimates got slashed once, twice, or even three times before the stocks actually went public, in a trend that could actually be healthy for investors. The harsher pricings of late may reflect that underwriters are just not willing to bet much on uncertainty.

Many of the secondary offerings, too, were completed by biotechs and biopharmas, perhaps indicating that their underwriters are taking advantage of investor interest while they have it—before the market gets any tougher on such companies, which tend to lack revenues, established products or FDA approval. For these companies, for whom an initial public offering can often be viewed as another round of financing on the road to possible profitability, getting priced in the single digits for a take that is small but keeps operations running, may not be such a bad thing. On the other end of the spectrum, the company that closed the largest IPO this month did so overseas.

Nearly three months after filing for its initial public offering, medical imaging software provider Emageon Inc. (NASDAQ: EMAG) got priced at $13.00 per share, the bottom of its expected range but higher than any of the other IPOs this month. Emageon raised approximately $58.5 million in an offering of 5,000,000 shares. Emageon will use the proceeds of the IPO to repay $4.0 million of outstanding subordinated debt and for general corporate purposes, possibly including acquisitions of or investments in complementary businesses. The underwriters, Wachovia Capital Markets, LLC and Piper Jaffray & Co., who acted as joint book-running managers, and Raymond James and Associates, Inc. and Friedman, Billings Ramsay & Co., Inc., who acted as co-managers, have the option to purchase up to an additional 750,000 shares. As of this publication, EMAG stock was trading up, to close in the $14.00 to $15.00 per share range.

Emageon’s visualization software offers health care enterprises a way for multiple physicians to share, manipulate, navigate and compare two- and three-dimensional images from multiple medical imaging devices. The Alabama-based company signed an agreement with IBM Global Financing last year, so Emageon’s customers are able to finance all of its products and services using a single source agreement. The company secured equity backing from Tenet Healthcare (NYSE: THC) and Kaiser Permanente four years ago, and has forged partnerships with Sutter Health, Allina Hospitals and Clinics, Aurora Health Care, LibertyHealth, Virtua Health, Baptist Health System, Catholic Healthcare West and other health care systems. Emageon began commercializing in 2000 and recorded a compound annual growth rate in revenue of 201% for the three years preceding 2004.

Favrille, Inc. (NASDAQ: FAVR), a biotech with headquarters in San Diego, California, finally priced its IPO, with Bear, Stearns acting as the sole book-running manager, and CIBC World Markets Corp., Needham & Company and A.G. Edwards & Sons, Inc. as the co-managers. Since the end of January, the price range had been lowered from an initial estimate of $12.00 to $14.00 per share to $8.00 to $9.00, then again to $7.00 to $8.00. Although the opening bid for FVRL on its first day out was $7.16, mostly the stock has been trading in the $6.50 to not-quite-$7.00 per share range. The company does not yet have products on the market or any meaningful revenues, but in July 2004 entered a pivotal Phase III clinical trial for patients with follicular B-cell non-Hodgkin’s lymphoma. Favrille had originally filed for an IPO last Spring, led by Piper Jaffray with three other underwriters, but Bear, Stearns took the lead as of a November 2004 filing.

Threshold Pharmaceuticals (NASDAQ: THLD) got priced at $7.00 per share for its initial public offering of 5,333,333 shares of common stock plus 800,000 shares to cover over-allotments, with underwriters Banc of America Securities and CIBC World Markets acting as joint book-running managers, and Lazard Freres & Co. and William Blair & Company acting as co-managers. THLD was expected to get priced between $14.00 and $16.00 per share, but that estimate was quickly lowered to $8.00 to $10.00 per share. The reduced pricing may have saved Threshold some public dismay, as its stock has been trading at just above $7.00 per share. Threshold is developing an approach to metabolic targeting, with its initial focus on cancer and benign prostatic hyperplasia, but does not yet have any meaningful revenues.

MediciNova, Inc. (OSE: 4875), a Tokyo-based pharma that also has offices in San Diego, California, filed with the SEC to make its initial public offering to investors in Japan and other locations outside the United States, on the Hercules market of the Osaka Securities Exchange. MediciNova was priced at $3.88 per share, within its estimated range of $2.75 to $4.25 per share. The public offering of 30,000,000 common shares, underwritten by Daiwa Securities SMBC, raised gross proceeds of approximately $107.7 million; the company will gain additional proceeds if the underwriters exercise their over-allotment option to purchase an additional 4,500,000 shares. MediciNova raised $73.0 million total in two venture capital rounds last year, and plans to assemble a strong portfolio targeting the obstetrics/gynecology and urology markets and build its business through alliances with North American, European, and Japanese biotechnology and pharmaceutical firms. The company received its first equity invest-ment from Tanabe Seiyaku Co., Ltd. in 2000; its other backers are in the United States, Europe, Japan, Taiwan and South Korea, including Essex Woodlands Health Ventures and Diamond Capital.

Gentium, S.p.A., an Italy-based biopharma, applied with the American Stock Exchange for its initial public offering, with underwriters Maxim Group LLC and I-Bankers Securities, Incorporated. If priced within range, including the over-allotment shares, the offering could raise up to $31.0 million. Founded in 1993, Gentium is primarily developing drugs derived through the extraction of DNA from natural sources, and sells products in Italy.

Intarcia, formerly known as BioMedicines, Inc., had originally filed for its IPO under the old name in late 2000, then withdrew the filing in April 2001, based on the belief that market conditions were not sufficiently attractive to proceed with the offering. Since then, Intarcia has gotten a handful of products into the later stages of development. Intarcia is focused on developing clinical-stage drugs for new indications, and has licensed compounds from Boehringer Ingelheim, Schering AG and others.

In a follow-on offering of increased size, Northfield Laboratories (NASDAQ: NFLD) sold a total of 5,175,000 shares, including the over-allotment option. The offering was priced at $15.00 per share, for gross proceeds of approximately $77.6 million. The underwriters for the offering were UBS Investment Bank as sole book-running manager, SG Cowen as co-lead manager and Harris Nesbitt as co-manager. NFLD had been trading at more than $20 per share for about a month prior to the offering, and since then has been trading at more than $16 per share. Northfield is developing an oxygen-carrying blood substitute for the treatment of urgent, large volume blood loss, which has completed Phase II trials.

American Retirement Corporation (NYSE: ACR) closed a follow-on offering of increased size, plus the underwriters, Jefferies & Company, Inc., exercised their over-allotment option. ACR sold a total of 5,175,000 shares for net proceeds of approximately $50.3 million.

Sunnyvale, California-based Nuvelo, Inc. (NASDAQ: NUVO) raised gross proceeds of approximately $73.0 million in its secondary public offering, through the sale of 9,775,000 shares of common stock, including the over-allotment option. The sole book-running manager in the offering was UBS Securities LLC; Deutsche Bank Securities, Inc. acted as a co-lead manager; and CIBC World Markets Corp. and Needham & Company, Inc. acted as co-managers. Nuvelo’s lead product candidate recently completed two Phase II trials in acute peripheral arterial occlusion and catheter occlusion.

Amylin Pharmaceuticals Inc. (NASDAQ: AMLN) raised approximately $190.5 million in a follow-on offering, which was increased in size, by 1,725,000 shares, to 9,200,000 shares including the over-allotment option. Morgan Stanley & Co. acted as the sole book running and joint lead manager, with Goldman, Sachs & Co. as the joint lead manager of the offering. The San Diego, California-based pharma is working to develop and commercialize medicines for people with diabetes and other metabolic disorders. Amylin is collaborating with Eli Lilly (NYSE: LLY) to develop and commercialize a glucose control treatment for people with type 1 diabetes.

San Diego-based Arena Pharmaceuticals (NASDAQ: ARNA), a drug discovery and development company, priced a secondary offering of 8,635,000 shares at $6.00 per share. The underwriters, CIBC World Markets Corp., as book-running manager, Piper Jaffray & Co., as co-lead manager, plus three co-managers, Needham & Company, Inc., Granite Financial Group, Inc. and Morgan Joseph & Co., Inc., exercised their over-allotment option in full. ARNA stock did trade up for several days, but was trading down slightly on the date of this publication.

With underwriter Pacific Growth Equities, La Jolla Pharmaceutical Company (NASDAQ: LJPC) sold 12,250,000 shares of its common stock in an offering priced at $1.40 per share, for proceeds of approximately $15.8 million. The La Jolla, California-based biotech is developing therapeutics to treat lupus and other autoimmune diseases.

Barrier Therapeutics, Inc. (NASDAQ: BTRX) announced a public offering of a total of 4,600,000 shares, including 2,000,000 shares being offered by existing BTRX shareholders and 2,600,000 newly issued shares. Morgan Stanley is the book-running manager of the offering, and Pacific Growth Equities and JPMorgan Securities are co-managers. BTRX debuted at $15 per share in April 2004, and after a late summer plunge to less than $10 per share, is again trading in the range of $15 to $20 per share. Princeton, New Jersey-based Barrier discovers, develops and commercializes drugs for dermatology; its most advanced candidates are in Phase III clinical development.

Zonagen (NASDAQ: ZONA) closed a follow-on offering, with net proceeds of approximately $18.1 million after the underwriters, Punk, Ziegel & Company and WR Hambrecht & Co., exercised their over-allotment option. The Texas-based biopharma is developing drugs for the treatment of hormonal and reproductive system disorders. ZONA was trading down slightly during the past few days, closing at just under $4.00 per share.