After the 30% and better returns in 2003, the public equity market is beginning to stall, but investor interest in health care companies is rising and many are choosing the public markets after a long dry spell. Since the middle of February, two IPOs have been priced, five are waiting to go and five more have filed with the SEC. A total of six secondaries have been priced in the past four weeks, and at least four additional companies will be pricing their equity offerings soon. Nearly $1.0 billion has been raised by health care companies in the public equity market during the past month, and this does not include convertible bond deals.

One of the reasons why the market will continue to be receptive to IPOs is the performance of the recently priced issues. In late January and early February, five health care IPOs were priced, and four of the five continue to trade above their original offering prices. Only biopharm-aceutical company GTx Inc. (NASDAQ: GTXI) is trading below its IPO price. The star of that group is Eyetech Pharmaceuticals (NASDAQ: EYET), a company that is developing treatments for conditions that affect the back of the eye. It is trading at an eye-popping 66% premium to its IPO price, and EYET was priced above the expected range.

In the most recent month, just two IPOs have been priced, but with very different beginnings. Perhaps showing investors’ preference for a company with a track record, revenues and profits, Kinetic Concepts (NYSE: KCI), which was expecting to sell 14 million shares at a range between $27 and $29 per share, ended up selling 18 million shares at $30 per share. The company focuses on wound care and "therapeutic surfaces" and has an EBITDA margin of nearly 20% on revenues in excess of $760 million. The shares hit a high of $44.73 after being priced in late February, and they are now trading just below that high.

Despite a majority of success stories this year, there is always going to be a dud. But in the case of Dynavax Technologies Corp. (NASDAQ: DVAX), it could have been much worse. The company has no revenues to speak of, and its lead product candidate, an injectable allergy drug, is about to start a two-year Phase IIb clinical trial. With no drugs in the pipeline in Phase III clinical trials, investors must have revolted a bit during the road show, causing the underwriters to drop the price substantially. The 6 million share offering, originally expected to be priced in the range of $12 to $14 per share, ended up at $7.50 per share, a discount so large that most companies would have postponed the offering.

The lead underwriters, Bear Stearns and Deutsche Bank, obviously convinced management that the situation was not going to be much better in the next few months and, more importantly, were able to convince DVAX to drop the price enough to turn what could still have been a disaster into what will be known as a reasonable deal when memories of the original pricing range fade. The shares jumped to a 25% premium on the first day before settling down to levels just above the IPO price. Needless to say, the underwriters exercised their over-allotment option and sold an additional 900,000 shares.

Speaking of memories, one IPO that should get priced this month is Memory Pharmaceuticals (proposed, NASDAQ: MEMY). With UBS Investment Bank and SG Cowen as the lead underwriters, the company plans to sell 5 million shares at a price between $13 and $15 per share. Among the largest investors in the company are Oxford Bioscience Partners, Venrock Associates, Hoffman-La Roche Inc. and OrbiMed Advisors, each with more than 1 million shares. After the IPO, it is expected that there will be about 19.5 million shares outstanding.

The company was formed in 1997 and is focused on the development of drug candidates for the treatment of a broad range of central nervous system conditions that will affect all of us (or already have)—namely, memory. This includes Alzheimer’s disease, vascular dementia and mild cognitive impairment, in addition to certain psychiatric disorders such as depression and schizophrenia. What many people don’t realize is that there is a strong relationship between memory loss (and other cognitive impairments) and psychiatric disorders, such as depression. Depressed patients tend to experience significant cognitive decline, while common manifestations of both schizophrenia and Alzheimer’s disease include the inability to correctly process new information, retrieve information and react appropriately to environmental stimuli.

Unfortunately, many of the current treatments for Alzheimer’s disease and depression are not effective in a large number of people and can produce significant side effects. In addition, they often do not deal with the cognitive impairments associated with these disorders. MEMY is focused on developing drugs that impact biological targets believed to play a critical role in memory formation and cognition. Specifically, the founder, who received the 2000 Nobel Prize in Physiology or Medicine, has identified critical cellular pathways and biological targets involved in the formation of short-term and long-term memories. Management believes that therapies designed to address these targets within the cellular pathways could be effective in treating many major neurological and psychiatric disorders, but because of the specificity of the targets, there will be significantly reduced side effects. Sounds good so far.

The problem may be that the company’s lead product candidates are in early clinical or preclinical development, which is risky given how long it will take to bring the successful ones to market while competitive drugs may be developed. One product for Alzheimer’s disease has completed Phase I trials and a Phase II trial is currently being designed. To mitigate some of this risk, MEMY has collaborated with Hoffman-La Roche (Roche) on two therapies, and to date has received $36.7 million in license fees, payments for research and development services, a milestone fee and an equity investment from this collaboration. The company could receive up to $248 million in milestone payments and license fees from Roche under these agreements. If MEMY’s products are successfully developed, there will be no shortage of demand; they just have to remember to get them to market before competitors do.

In another IPO that should be priced this month, biopharmaceutical company Tercica, Inc. (proposed, NASDAQ: TRCA) plans to sell 5.5 million shares at a price between $11 and $13 per share with Lehman Brothers and SG Cowen as the lead managers. Formed a little over two years ago, the company is focused on the development of recombinant human insulin-like growth factor-1 (rhIGF-1) for the treatment of short stature, diabetes and other endocrine system disorders. While Tercica has no revenues, it has completed Phase III trials for "severe" pediatric insulin growth factor deficiency (IGFD) and intends to submit a new drug application to the FDA in early 2005. In addition, the company will begin Phase III trials for pediatric IGFD in late 2004 with several other Phase II trials for adult IGFD, Type A diabetes and Type 2 diabetes planned for either later this year or 2005.

Tercica has a license and collaboration agreement with Genentech (NYSE: DNA), under which DNA has agreed to transfer its preclinical and clinical data related to rhIGF-1 to Tercica, as well as its manufacturing technology. Tercica paid DNA $1.0 million in cash and $4.1 million in preferred stock, making DNA the company’s fourth largest shareholder. The three largest are MPM Capital, with a 36.8% stake before the IPO, Prospect Management (17.9%) and Rho Ventures (11.0%). Two other venture capital firms own 5.5% each. If the IPO is successful, Tercica will have approximately 23.5 million shares outstanding.

Of the several companies that recently filed to go public but are still in the registration process with the SEC, one has been around for eight years and has grown to 300 employees and $34.1 million of revenues last year. Animas Corp., based in Frazer, Pennsylvania, has already received $63 million from private investors and plans to raise up to an additional $69 million with an IPO. The company’s founder and CEO, Katherine Crothall, started another company 25 years ago which was sold to Johnson & Johnson (NYSE: JNJ) in 1981, followed by another company that was eventually sold to ESC Medical in 1994.

Animas makes insulin infusion pumps and other products for people suffering from diabetes, and also provides patient education services. The company’s lead product is the R-100 insulin infusion pump, which was introduced to the market in 2000. As of the end of last year, Animas had shipped more than 13,000 pumps and 1.5 million infusion sets to customers. Piper Jaffray will be the lead manager, with JPMorgan and Thomas Weisel as co-managers.