The Public Market Needs A Jump-Start Only Two IPOs Are Priced, But They Are Faring Well

	Jenks Healthcare Business Report Your complete source for market intelligence, M&A and venture capital transactions in health care
November 2004 issue The Public Market Needs A Jump-Start Only Two IPOs Are Priced, But They Are Faring Well This month the public market has traded quantity for quality, with very few offerings or filings made but a couple of worthy IPOs. ... Venture Capital Market The health care venture capital market certainly has not suffered in the days leading up to and after the presidential election, with deal volume and total dollars committed both on par with last month’s figures. See page 1 ... Private Equity Market Health care companies raised 34% more private equity this year than they did last November, and investor confidence in some companies may be bolstered by recent federally-funded initiatives. See page 11 ... Departments Public Market Chart P3 M&A Deal Chart P5 Venture Capital Charts P7-9 Private Placement Charts P11-13 Notes & Briefs P16 Sign up for a trial subscription and get the current issue! Read the past headlines.	The Public Market Needs A Jump-Start Only Two IPOs Are Priced, But They Are Faring Well Back in March we said that the public equity market in general had stalled, but not for health care. After a brief pickup during the summer months, with the approach and closing of the 2004 presidential election, the public equity market for health care companies has not only stalled, but it is uncertain when it will get moving again. We thought the end of the election, with no drawn out legal battles like four years ago and all the uncertainty that comes with it, would be enough to get investors in the game. This has not, however, been the case. There are just 10 public equity deals we are reporting on this month, but two of them involve IPOs being withdrawn—one pulled out due to market conditions and the other has decided not to make an offering at all. The other offerings included two IPOs that were priced, one secondary that was priced and two others that are on deck, and a few other IPOs that were either filed or with estimated terms released. Perhaps one of the reasons why investors are avoiding public health care equities in general is the rash of negative news in the general media. Public confidence in pharmaceutical companies is diminishing along with the dwindling supplies of flu vaccine, as concerns over drug safety are increasing. Issues revolving around the safety of drugs and the accuracy of their advertising are tarnishing what has been one of the top American businesses for quite a while. Who would have thought that Merck (NYSE: MRK), one of the most respected companies in the country, would find itself in its current situation, with shareholders taking a nearly $50 billion bath in a matter of weeks? The fallout on the rest of the health care sector has to be huge, and investors are finding other places to park their money. Meanwhile other companies that make COX-2 inhibitors, including Pfizer (NYSE: PFE), find themselves in the position of having to defend the safety of their products. Although the biotechnology sector continues to attract a hefty share of health care investments, this sector is still in its youthful stages and we have yet to learn just how much of the current biotech research being done will pan out for patients and investors in the long run. In contrast, in last year’s November issue, 15 health care companies had priced either an IPO or a secondary, plus another nine were waiting in the wings. Back then we were still waiting for the door to really open for health care IPOs, and it had opened a crack last year, and again this year, briefly—but at this point that door is just swinging in the breeze of uncertainty. Of those companies that did make the float during the past four weeks, VNUS Medical Technologies, Inc. (NASDAQ: VNUS) has, in the short term anyway, done better than most of the other health care companies that have completed an IPO this year. After being priced at the top of its range, or $15.00 per share, by Banc of America Securities and Piper Jaffray, VNUS stock has been on the rise, closing at nearly $19 per share as of this publication. After withdrawing its original registration in 2001, VNUS Medical re-filed for its IPO in July of this year, at a time when the public market may have reached its kindest point of this year for health care. It seems that for VNUS, it was well worth the wait. The original filing, done in 2000, called for an offering of 4,250,000 shares, with a projected price range of $11.00 to $13.00 per share, and was to be led by U.S. Bancorp Piper Jaffray Inc., Chase Securities Inc. and Dain Rauscher Incorporated. The San Jose, California-based company makes devices for the minimally-invasive treatment of venous reflux disease, a condition caused by incompetent vein valves in the leg. FoxHollow Technologies (NASDAQ: FOXH) didn’t wait nearly as long as VNUS did to make its initial public offering, having filed its original S-1 just this August, but FOXH stock has certainly performed just as well. After being priced at the top of its range, FOXH has been trading above $20 per share, closing four of its first 13 days on the market at $25 or more per share. Based in Redwood City, California, FoxHollow has no meaningful revenues yet, but it has a technology that it says could help the 12 million people who are estimated to have plaque clogging their arteries. The medical device maker is focused on the treatment of peripheral artery disease (PAD), a result of the accumulation of plaque in arteries, most commonly occurring in the pelvis and legs. The accumulation of plaque is known as atherosclerosis, a condition that reduces the flow of oxygenated blood to tissue and organs, and over time can increase the risk of heart attack, stroke, amputation or death. FoxHollow’s device, the SilverHawk Plaque Excision System, allows surgeons to remove plaque from the arteries in a minimally invasive fashion. The company reports that it has generated more than $23 million in revenues (with a net loss of $22 million) by selling more than 12,000 of the devices to more than 500 hospitals in the United States alone, as of September 30, 2004. The current treatments for patients suffering from PAD include non-invasive methods, such as lifestyle changes and drug therapy, and more invasive methods such as angioplasty (expanding the artery wall) and stenting (propping open the artery wall). Traditionally, in many cases where the blocked artery was below the knee treatment has been delayed until bypass or amputation surgery became necessary. FoxHollow’s device is expected to be safer and more efficacious than traditional treatments, and easier to use for treatments below the knee. CABG Medical has filed an amendment to its S-1 statement, which no longer lists Stifel, Nicolaus & Company Incorporated as an underwriter. Instead, Feltl and Company has now teamed up with Ladenburg Thalmann & Co. Inc. to make the offering, the terms of which have not changed. CABG is expected to make its debut during the latter half of November. The company has designed a technology that, if approved, will provide a Teflon graft product, called the Holly Graft System, to cardiac surgeons, so that coronary artery bypass surgeries can be done without harvesting vein grafts from other parts of the body. Approximately 305,000 patients received more than 515,000 bypass procedures in the United States during 2001, with each surgery estimated by the American Hospital Association to cost approximately $61,000. It’s hard to say exactly how much money will be saved by using the Teflon graft, but presumably by reducing the number of incisions from two (removing a vessel from the leg or another area of the body, plus attaching it at the new site) to one, some costs will be cut. The company also expects to find a growing market for its graft system among the increasing numbers of elderly and obese, people who may be more likely to suffer cardiovascular events.
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