The IPO Market Is Weakening, As Offerings Are Getting Pulled

	Jenks Healthcare Business Report Your complete source for market intelligence, M&A and venture capital transactions in health care
August 2004 issue Public Equity Market Although a good number of health care companies have made or filed for their IPOs, some have withdrawn or postponed their offerings, and most of those that have done their IPOs could have fared better. ... Venture Capital Market The venture capital market may be in a late summer slump, still posting several deals but mostly for lesser amounts than we have seen this year. See page 1 ... Private Equity Market The private placements in health care have slowed, both in deal volume and dollar value, but some unusual deals have been done. See page 9 ... Departments M&A Deal Chart - 5 Public Market Chart - 3 Private Placement Charts - 10-11 Venture Capital Charts - 7-8 Notes & Briefs - 12 Sign up for a trial subscription and get the current issue! Read the past headlines.	The IPO Market Is Weakening, As Offerings Are Getting Pulled In the past thirty days, just two of nine health care IPOs that were done, got done with some success: MannKind Pharmaceuticals (NASDAQ: MNKD) and Biomedical Realty Trust (NYSE: BMR), both of which were priced within range and began trading at values close to their pricings. Four health care IPOs were withdrawn or postponed. Five IPOs were priced below range, two of which had already seen their expected ranges lowered before pricing: one, Auxilium (NASDAQ: AUXL), had its range lowered three times and the other, Stereotaxis (NASDAQ: STXS), reduced its size too. Two of the IPOs got priced at the bottom of their ranges, including Syneron (NASDAQ: ELOS), which had already seen its expected range lowered. One company that had originally filed for its IPO in 2000 but withdrew it in 2001, VNUS Medical, has re-filed but has not yet announced terms. Apparently unswayed by the current market climate, two more health care companies, Adeza and CABG Medical, lined up for their IPOs during the same period. Both Symmetry Medical and Cyclacel postponed their initial public offerings, apparently waiting for better market conditions. TolerRx withdrew its initial public offering once again, for the second time in a 12-month period. Empi Medical, Inc. was ready to get priced, but instead, Encore Medical (NASDAQ: ENMC) has agreed to acquire that company. Empi develops, manufactures and markets devices for orthopedic rehabilitation, pain management and physical therapy, primarily for use by patients in their homes. Empi had net revenues of $150.5 million for the year ended December 31, 2003 and its business activities are expected to complement Encore’s business. Based in Texas, Encore is an orthopedic company that designs, manufactures and markets a variety of orthopedic devices and sports medicine equipment, primarily catering to orthopedic surgeons, physical and occupational therapists and other orthopedic specialists. MannKind Pharmaceuticals which operates from San Francisco, California and Danbury, Connecticut, made an initial public offering of 6,250,000 shares, priced at $14 per share, where it actually hovered for its first six days of trading. The stock was priced within range, at a size increased by 750,000 shares from the expected offering. The company is making an effort to change the way diabetes is treated, with an inhaled insulin formulation and delivery device to replace the injection delivery system currently used for diabetes. Lead executive Alfred Mann holds more than 50% of the company’s stock; previously, Mann was CEO of a company formerly known as MiniMed (now, Medtronic’s MiniMed), which was acquired by Medtronic (NYSE: MDT). Dragged under in a current of sinking IPO prices, New River Pharmaceuticals (NASDAQ: NRPH) got an opening bid of $7.75 after being priced at $8.00 per share, a 50% discount to the expected offering price. NRPH shares were sold through underwriter W.R. Hambrecht & Co.’s auction-based initial public offering system, similar to the Dutch auction system being employed by a certain search engine giant that the media has been ogling recently. The market showed little kindness to NRPH; the stock traded for as little as $7.25 per share during its first day out, but raised $33.6 million. Last October, W.R. Hambrecht had done the initial public offering for Genitope (NASDAQ: GTOP) by means of the same auction process, raising $33.3 million. Radford, Virginia-based New River is developing prodrugs, which are chemical precursors to active pharmaceutical ingredients, and consist of an active ingredient (such as an opiod) linked up with a companion molecule that is designed to alter the activity of the active ingredient in consistent and predictable ways, resulting in "safer" drugs. The company’s most advanced compound, NRP104, is a prodrug of amphetamine that is intended for once-a-day use to treat ADHD. The company is also seeking to commence clinical trials of a combination product in two different compounds to treat acute pain, both containing NRPH’s precursor to hydrocodone, mixed with acetaminophen (like Tylenol) in one compound and with ibuprofen (like Advil) in the other. In spite of the interesting science behind its portfolio of early-stage compounds, New River does not yet have a product on the market, has incurred losses totaling approximately $23.7 million on zero sales and expects to continue incurring losses while using the proceeds of its debut offering to fund clinical and preclinical trials, research and development. In what could be good news for New River, Par Pharmaceuticals (NYSE: PRX) purchased 875,000 shares of NRPH common stock in the initial public offering at the price of $8.00 per share. Par manufactures, markets or licenses more than 80 prescription drugs; its investment represents 5% ownership of the outstanding shares of NRPH common stock. Speaking of IPOs that could have been done better, the value of Idenix Pharmaceuticals’ (NASDAQ: IDIX) stock fell by more than $5.00 per share below its offering price within the first two weeks IDIX was trading. In connection with the offering, Goldman, Sachs & Co. acted as sole bookrunner, with Morgan Stanley & Co. as joint lead, and Bear, Stearns & Co. as co-manager. Prior to May 2002, the Cambridge, Massachusetts-based biotech had been known as Novirio Pharmaceuticals and had raised over $68 million in private financing to pursue the development of treatments for infectious diseases including Hepatitis B and C and HIV/AIDS. Just weeks before Novirio announced that its name was changing, co-lead managers Goldman Sachs & Co. and Banc of America Securities (not listed as an underwriter this time around) had filed with the SEC to take the company public that year, but withdrew the offering citing difficult market conditions. Perhaps the underwriters and Idenix expected that, in spite of a somewhat ailing IPO market, investor enthusiasm would be fueled by the press releases the company issued shortly before IDIX went public. Idenix’s year-long trial of a treatment for Hepatitis B resulted favorably, helping reduce viral replication and the other reported similarly positive results from the first human trial of a drug for Hepatitis C. On the secondary side, after taking a severe two-year beating, the value of Cell Therapeutics’ (NASDAQ: CTIC) has yet to improve. Although CTIC was trading in the $20-$60 range for most of 2000 and 2001, its shares have been trading at $10 or less since a mid-2002 plunge. This July, Cell Therapeutics said that its experimental treatment for non-Hodgkin’s lymphoma, pixantrone, a Phase III drug formulated to reduce the potential for severe cardiotoxicities, had been granted "fast-track" status by the FDA. Within a few days, the company announced that it would sell 8 million shares of its stock in a secondary offering, but later increased the size of that offering to 9 million shares. The follow-on offering of CTIC got priced at $4.75 per share on July 28 and the stock price has been trading in the range of $4.75 to $5.00 per share. For one of its flagship products, the cancer drug TRISENOX, CTIC reports that sales are up by 50% for the second quarter 2004, compared with the year-ago quarter. The drug is an arsenic trioxide injection for the treatment of relapsed acute promyelocytic leukemia; in a pre-commercialization study, 70% of 40 patients treated with the drug achieved complete remission within two months after starting the therapy. And we thought arsenic was poisonous! Cell Therapeutics has another product waiting in the wings: Xyotax is in its third pivotal trial for the treatment of lung cancer. Separately, at the end of June, President George W. Bush presented Dr. Vartan Gregorian, an historian and a director on CTIC’s board, and also the current president of the Carnegie Corporation, with the Presidential Medal of Freedom, with which recipients are recognized for their achievements in public service related to science, business and other fields. Immtech (AMEX: IMM) and sole book-running manager Jefferies & Co. completed a secondary offering of 782,608 shares generating gross proceeds of $9.2 million. IMM’s pipeline includes orally available compounds to treat infectious diseases, cancer and metabolic disorders. Last November, the company acquired a manufacturing facility in China, a move intended to help the company expand from product development to commercialization activities; we haven’t seen a drug on the market yet. Immtech secured $5.0 million through a private placement of 200,000 preferred shares at $25 apiece 18 months ago, for drug discovery. The company’s stock began trading publicly at $10 per share in April 1999; since then IMM stock has traded for as little as $1.98 per share (January 2003) and as much as $28.88 per share (December 1999).
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