China Medical, Adams, XenoPort, winners among 2005 IPOs; Accentia, Avalon, CryoCor, biggest losers

By Ronda Fears

Nashville, Dec. 30 - It was tough for initial public offerings among life sciences concerns in 2005, but once all was said and done it ran a close race with 2004, perhaps leaving room for higher expectations in 2006.

With NuCryst Pharmaceuticals Inc. sneaking in its IPO just before the Christmas holiday, there were 25 deals raising gross proceeds of $1.36 billion, compared with 28 IPOs in 2004 with gross proceeds of $1.64 billion. Those figures were compiled from Prospect News' database and records of several investment banks.

Adams top 2005 performer

As far as performance goes, Adams Respiratory Therapeutics Inc. was clearly the home run of IPOs for 2005, soaring past its debut price by nearly threefold at one point since going public during the late summer. The $135.2 million IPO, excluding the greenshoe, also was the second largest life sciences IPO in terms of gross proceeds.

The Chester, N.J.-based company, best known for its cough syrup Mucinex, priced its IPO at $17 - above the price range of $14 to $16 - on July 21. The stock shot up immediately in the aftermarket to $21.50 and almost never looked back, hitting a high of $49.73 on Nov. 22.

The IPO was bumped up to 7.95 million shares from 7.10 million shares as well as pricing aggressively to guidance. In the IPO, previous stockholders sold 2.25 million shares and the company sold 5.7 million shares.

Adams had earmarked proceeds from the IPO to fund the development of two additional over-the-counter products and one new prescription product, to fund clinical trials for its recently in-licensed product candidate erdosteine, and for potential acquisitions.

Adams secondary a drag

The astronomical spike in Adams Respiratory shares advanced the exit strategy among some of its top venture capital investors, which many blamed for the pullback in the stock price toward year-end.

A day after the stock hit the high of $49.73, a secondary offering of 5.66 million shares of Adams was launched with the two biggest selling stockholders, Chicago-based EGI-Fund Investors LLC and the New York-based Perseus-Soros BioPharmaceutical Fund LP, cashing out some of their holdings. EGI cut its stake to 16.87% from 38% and Perseus-Soros reduced its stake to 9.93% from 15.29%.

Other sellers included Tullis-Dickerson, Marquette Venture Partners, John Adams Jr., Mark Gainor, Salem Capital Partners LLC, T. Jefferson Coolidge and Fawn Capital Partners, LLC.

The secondary offering priced Dec. 8 at $43.75.

On Dec. 30 the stock closed out the year at $40.66, slipping on Dec. 30 by 27 cents, or 0.66%, on the day.

ev3 took top proceeds in 2005

Medical device maker ev3, Inc. took the top dollar amount among life sciences IPOs in 2005, raising $164.1 million in gross proceeds, and at year-end the stock was running close to where it debuted.

The Plymouth, Minn.-based company priced its IPO at $14 - below the proposed price range of $16 to $18.

ev3 makes stents and other endovascular surgical products. It had earmarked $75 million of the IPO proceeds to repay $30.3 million of demand notes plus $44.7 million of accrued and unpaid interest held by Warburg Pincus Equity Partners LP and The Vertical Group LP, which collectively owned 90% of ev3 shares prior to the IPO, and the remainder for general corporate purposes.

ev3 shares closed the year at $14.74, edging up 6 cents on Dec. 30, or 0.41% on the day.

Avalon big bomb in 2005

The biggest dud of the year in terms of performance since pricing the IPO was Avalon Pharmaceuticals, Inc.

In late September, Avalon priced its IPO at $10.50 - at the low end of the guidance range of $10 to $12 - and quickly went underwater, where it continued to sink. After hitting a low spot of $4.26 on Dec. 19, the stock closed out the year at $4.50, losing 12 cents on Dec. 30, or 2.6% on the day.

Germantown, Md.-based clinical stage Avalon slated IPO proceeds to fund clinical trials and for licensing, acquisitions, working capital, capital expenditures and general corporate purposes. The biotech firm is focused on the discovery and development of small molecule therapeutics for the treatment of cancer.

Avalon return to market seen

Avalon watchers say the company got ahead of itself and probably will be needing to tap the capital markets in 2006.

"I feel maybe they IPO'd too rapidly. They have a phase 1 trial and there will be no catalyst until late 2006 or early 2007," said one buyside market source who participated in the Avalon IPO, saying it was "pretty cheap."

But with the company burning cash at a clip of $15 million a year, because its drug candidates are in early stage development, he expects Avalon to return to the market sooner rather than later.

"They have a $40 million valuation and $30 million cash and their burn rate will be going up," the buysider said. "They will probably need money in the next six months."

Predix, Voyager IPOs flop

The biggest disappointments in 2005 were the withdrawn IPOs of Voyager Pharmaceuticals Corp. in December and Predix Pharmaceuticals, Inc. in late October. Onlookers expect both will make another attempt in 2006, however.

Voyager got lots of kudos from small buyside players, but big institutional accounts muscled it out of the market by mid-December, after having forced it to a smaller size with sweetened price talk. Raleigh, N.C.-based Voyager cut the size to 4.5 million shares from 5.9 million and the guidance was lowered to $11 to $15 a share from $15 to $19 and still it failed to get off.

Voyager had planned to use proceeds, originally estimated at $67.5 million, for clinical trials of its lead drug candidate Memryte - a small biodegradable implant for mild to moderate Alzheimer's - which is in phase 3 trials.

Another Alzheimer's drug researcher, among other things, Predix pulled its deal - pitched at $10 to $12 - in October, blaming market conditions at that time. Lexington, Mass.-based Predix, formerly Bio Information Technologies Ltd., has its roots in Israel and is focused on novel, highly selective, small-molecule drugs that target G-protein coupled receptors and ion channels.

"While we have decided to withdraw our plans for an IPO at this time, we are continuing to advance the clinical development programs for our three lead product candidates," said Predix chief executive Michael Kauffman. "We are well underway with enrollment for our first pivotal phase 3 clinical trial of PRX-00023 in general anxiety disorder, and we expect to initiate a phase Ib proof of concept study for PRX-08066 in pulmonary arterial hypertension later this year [2005] and a phase 2 study of PRX-03140 in Alzheimer's disease in the first half of next year [2006]."

Paying forward provides hope

If history shows anything, then from 2004 there are strong signs that many of 2005's deals will continue to perform well and there could be room for optimism in 2006.

"Of course we emphasize the successes and downplay the disappointments," said a junior life sciences banker at one of the top investment banks underwriting biotech equity deals. "But we think, in reality, that 2006 will be a nice year for IPOs."

One of the 2004 turnaround stories life sciences bankers point to is New River Pharmaceuticals Inc., which IPO'd in early August 2004 at $8, well below guidance for $10 to $14. At year-end 2005, the 52-week low for the stock was $12.75, well above the IPO level. But the real kicker was the stock hitting a new 52-week high of $54.20 on Nov. 21.

New River had eased back by year-end to close Dec. 30 at $51.88, having lost 17 cents on the day, or 0.33%.

The life sciences banker also noted that there were few stocks in the sector that debuted in 2004 that are underwater. Probably the biggest disappointment from the 2004 IPO roster, he said, was Barrier Therapeutics Inc., which priced in April 2004 at $15 - the middle of price talk for $14 to $16. At year-end 2005, Barrier had a 52-week low or $6.66 and high of $22.40, but ended the year at $8.20 after slipping 7 cents on Dec. 30, or 0.85%.

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