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October 2005 issue
Much Ado About Nothing? - An e-Health IPO
Sizzles and a SPAC Completes its Debut Offering Sign up for a trial subscription and get the current issue! Read more about Healthcare Corporate Finance News Read the past headlines.
Companies Mentioned in this issue:
October 2005 |
Much Ado About Nothing? - An e-Health IPO Sizzles and a SPAC Completes its Debut OfferingIn the public equity market, investor behavior of late has been a bit mystifying to some, and led others to suggest that Wall Street is wide open for high-risk investments this season. The initial public offerings completed in the health care industry during September include an unprofitable e-health company that raised just shy of $135 million, a company that does not yet operate a business and a company developing human embryonic stem cell-based therapies (and as if that’s not controversial enough, the same company is joint venturing with a big pharma that’s in a little trouble). Health care companies completed four IPOs and eight secondary offerings during the month of September, and filed for four new IPOs and five secondaries; two withdrew IPOs. With social disparity and terror constantly in the news, maybe it’s not surprising that investors are turned on by the idea of a national community focused on interacting to improve health, wellness and the delivery of care, even if that community is in cyberspace. So are the warm fuzzies what’s driving investors to buy up shares of WebMD Health (NASDAQ: WBMD)? Because it is not the profitability—WebMD is actually not sure when, or if, it will become profitable, except to say that it was for one year, 2004. WebMD is now separate from its parent, Emdeon Corporation (NASDAQ: HLTH), which will continue to control the company. Emdeon will own all of WebMD’s outstanding Class B common stock, representing approximately 87.5% of WebMD’s outstanding common stock and approximately 97.1% of the combined voting power of the outstanding common stock. Incidentally, M.D. On-Line, Inc., a provider of electronic claims solutions to better connect health care payers and providers with offices in New Jersey and California, received an unfavorable court ruling in its effort to prevent WebMD’s parent from changing its name to Emdeon. One investment banker was quoted as saying it was "trading forces, not fundamentals" in the first few hours of the public offering of Class A common stock that drove WBMD’s share price up from the $17.50 per share IPO price to as high as $30 per share. According to some investors, the underwriters sold small parcels of several hundred shares each, so multiple small trades would have to be made by anyone wanting to build a larger position in the company. An unassociated journalist suggested the offering is only intended to make the "big fishies" rich. (Smart fish.) It will be interesting to see how long major investors will hold onto the hook waiting for this company to become profitable, and how smaller investors will react when analysts begin issuing research. As of this publication, WebMD’s stock had settled down to $24 per share. Among the other companies that didn’t make such a splash but still braved the float, Genomic Health, Inc. (NASDAQ: GHDX) got its initial public offering of 5,016,722 shares priced at $12.00 per share. J.P. Morgan Securities Inc. and Lehman Brothers Inc. acted as joint book-running managers for the offering, with Piper Jaffray & Co., Thomas Weisel Partners LLC and JMP Securities LLC acting as co-managers. Avalon Pharmaceuticals, Inc. (NASDAQ: AVRX) announced the pricing of its initial public offering of 2,750,000 shares of common stock at $10.50 per share. W.R. Hambrecht + Co., through its own auction-based IPO process, led the offering, with Legg Mason Wood Walker Incorporated and Susquehanna Financial Group LLP serving as co-managers. Avalon, a biopharma headquartered in Germantown, Maryland, is focused on the discovery and development of small-molecule therapeutics for the treatment of cancer. BioDelivery Sciences International (NASDAQ: BDSI), a four-year-old specialty biopharma developing technologies, including nanotechnologies, for drug delivery, raised approximately $8.8 million in a secondary offering of common stock. After the offering was priced, at $2.00 per share, BDSI’s shares were trading down a bit; a year ago, they were at about $4.00 per share. One of BDSI’s technologies would provide oral delivery of injectables, and enhance the efficacy and reduce the toxicity of certain oral drugs. The company has offices in North Carolina and research facilities in New Jersey. One of a handful of SPACs recently formed for the purpose of acquiring a health care business, Ithaka Acquisition Corp. (OTCBB: ITHKU) completed its IPO, raising more than $53 million; $47 million of the proceeds is currently held in trust. Now Ithaka is looking for a target that is valued at anywhere from $40 million to $500 million. Ithaka was formed by the CEO of Potomoc Pharma, Inc., a specialty pharma; a managing director of ATP Management Group, a venture capital firm; and Paul Brooke, a venture partner of MPM Capital—the Boston, Massachusetts-based firm with an extensive portfolio of biotechnology and medical technology investments. The firm has over $2.1 billion currently under management. MPM Capital has participated in the venture financings of at least 13 companies this year alone, including Affymax, Inc. and Verus Pharmaceuticals, and its portfolio also includes CoTherix, Inc. (NASDAQ: CTRX) and Critical Therapeutics, Inc. (NASDAQ: CRTX). Perhaps hinting that the target could be a company based outside the United States, Mr. Brooke stated in a recent press release that "high-quality, non-U.S. private mid-market companies are seeking access to U.S. capital markets," and that spinoffs, divestitures and partnering deals, and the absence of a robust IPO window, are forces contributing to abundant opportunities in the health care sectors today. Ithaka sold 8,849,100 units, including the over-allotment option, at a price of $6.00 per unit. The lead underwriter in the offering was EarlyBirdCapital, Inc. EarlyBirdCapital, based in New York City, is also expected to act as the lead underwriter in the anticipated IPO of KBL Healthcare Acquisition Corp. and Paramount Acquisition. Also in the works is an IPO from Oracle Healthcare Acquisition, being underwritten by CRT Capital Group LLC, which is headquartered in Stamford, Connecticut. Big pharma is showing support for the development of treatments based on human embryonic stem cells (hESC therapies). Merck & Co., Inc. (NYSE: MRK) created a strategic arrangement with Geron Corporation (NASDAQ: GERN), which included the purchase of common shares in conjunction with a public offering of shares by Geron. Perhaps Geron is hoping that whatever credibility Merck still has, as the Vioxx trials continue, could boost public confidence in and acceptance of hESC therapies. Merck exercised its warrant to purchase 2,000,000 shares of Geron’s common stock with a total value of $18 million; concurrently, Geron Corporation sold to the public 6,900,000 shares, including the over-allotment option, for gross proceeds of $62.1 million. The underwriters included UBS Investment Bank acting as the sole book-running manager, with SG Cowen, Needham & Company, LLC and Lazard Capital Markets acting as co-managers. Pursuant to a collaboration and license agreement, Geron and Merck will develop a cancer vaccine targeting telomerase using Merck’s vaccine platform. Geron believes it is in a dominant patent position in the field of telomerase, an enzyme found expressed in at least 30 types of cancer, but not in normal cells. Though the enzyme is not purported to be the cause of cancer, it is said to enable the indefinite reproductive capacity of the cancer cells. Geron also has under development cell-based therapeutics for several diseases based on differentiated cells derived from six different types of human embryonic stem cells—currently in testing in animal models—including neural cells for spinal cord injury, osteoblasts for osteoporosis, islet cells for diabetes and other types. One company we are not likely to see a secondary from anytime soon, if ever, is IntraBiotics Pharmaceuticals, Inc. (OTCBB: IBPI), which received a letter from the staff of the NASDAQ stock exchange, asserting that IntraBiotics is a public shell and therefore subject to delisting. Earlier this year, California-based IntraBiotics announced it had stopped trials of its drug for ventilator- associated pneumonia (VAP), because the patients in the trial who were on the drug suffered a higher incidence of VAP and death rates than those on the placebo. Since then, IntraBiotics has not reported any new clinical data. |
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