The Hope for a BioHealth/BioTech IPO Pipeline (OMER, CPIX, TLCR, EBS, AGAM)
There was, and likely still is, some hope that we might see a wave of emerging biotech and biohealth initial public offerings in this last quarter of 2009. All of the recent biotech and biohealth mergers have created a hole in the sector with many vacant sub-sectors in biotech now not having any pure-play stocks available in them. We have enjoyed a fabulous stock market over the last six months. And other large IPOs are making it to market. With all of the biotech and biohealth mergers we have seen in recent months, you might be under the impression that the biotech world would be full of companies with promising pipelines that would want to come public via an initial public offering. The problem is that the good news stops there.
Omeros Corporation (NASDAQ: OMER) was an IPO that came to market this week, and it was a flop. Omeros priced its IPO of 6.82 million shares at $10.00 per share, which was at the bottom of the $10 to $12 range originally signaled by Deutsche Bank and Wedbush Morgan. Omeros is a biotech play as a clinical-stage company committed to discovering, developing and commercializing products focused on inflammation and disorders of the central nervous system. The company’s proprietary PharmacoSurgery platform is designed to improve clinical outcomes of patients undergoing arthroscopic, ophthalmological, urological and other surgical and medical procedures, and the company claims to have built multiple development programs targeting large markets. You can even see its pipeline here with the planned FDA event date targets.
The weak reception on the pricing of any IPO is often a red flag. But when a lower-priced IPO trades as a busted IPO. it throws up a larger red flag. That is exactly what happened here at Omeros. This one has still not even traded its full float and that is a signal that the interest just remains very low here. In fact, this opened very low at $8.80 on its debut trading day on Thursday, then traded as high as $9.49 (likely the market-buy order investors catching the top-tick) and closed at $8.73. Then the high on Friday was only $8.77 and the closing price was $8.46. It is impossible to use two trading days after an IPO for definitive technical analysis, but this has the earmarks of a disaster written all over it. The hope here for investors just has to be that the company has a rabbit in its hat.
One IPO is not enough to doom a sector. So we took a look over the remaining IPO’s that have come to market in the last year. While there have been some medical IT plays, Cumberland Pharmaceuticals, Inc. (NASDAQ: CPIX) is the other pharma-related stock that was a traditional IPO. This one priced at $17.00 in August and it is trading at $15.36 now. Adding insult to injury, it has only closed at or above $17.00 for 3 trading days. Cumberland is a specialty pharmaceutical company, focuses on acquiring, developing, and commercializing branded prescription products for the acute care and gastroenterology markets. Cumberland lists 3 products on its site:
- Acetadote®- prevents or reduces liver damage resulting from acetaminophen overdose
- Kristalose®- a prescription laxative it believes has significant advantages over competitive products
- Caldolor®- an intravenous formulation of ibuprofen approved by the FDA in June 2009
The three firms that follow Cumberland are UBS, Jefferies, and Morgan Joseph, and all rate it a “Buy” but that has done little. Wells Fargo was also among the book-runners of the IPO of 5 million shares. This is 1 of 3 IPOs that are listed as busted IPOs of the 16 recent deals over the last year, or one of four if you count Omeros.
So what about recent IPO filings? It turns out that of the recent IPO filings, there is a huge hole in the biotech sector representation. Anthera Pharmaceuticals Inc. is one filing we saw last month, and it lists underwriters as: Deutsche Bank Securities serving as lead underwriter, and additional syndicate members are Piper Jaffray, Wedbush PacGrow Life Sciences, and Merriman Curhan Ford. Full summary details.
One IPO that flew under the radar in the screens of many following the IPO universe of 2009 was Talecris Biotherapeutics Holdings Corp. (NASDAQ: TLCR). The reason is that this one is a private equity-backed company where most of the proceeds did not exactly go to benefit the company itself. It noted that 56,000,000 shares were sold in the IPO, with 28,947,368 shares sold by the company and 27,052,632 shares by the selling stockholder (Cerberus-Plasma Holdings, LLC). Net proceeds received by the company were used to pay down debt. Morgan Stanley, Goldman Sachs, Citigroup, and J.P. Morgan were joint book-running managers; and Wells Fargo, Barclays Capital, and UBS were the co-managers.
Talecris is a biotherapeutic and biotechnology company that discovers, develops and produces critical care treatments for people with life-threatening disorders in a variety of therapeutic areas including immunology, pulmonology and hemostasis. After a $19.00 pricing, this is still trading above $21.00. This company has Emergent BioSolutions, Inc. (NYSE: EBS) listed in an exclusive manufacture and supply agreement which involves the development of a new immunoglobulin for inclusion in the national stockpile for the treatment of anthrax exposure. Its full pipeline is here.
AGA Medical Holdings (NASDAQ: AGAM) is on deck to come public in the next week or so, but this is a device play rather than a biotech play. It offers minimally invasive devices to treat heart defects and vascular diseases. The most recent IPO terms were for an offering of 13.8 million shares, and the expected price range is $19 to $21 per share. Lead managers are BofA Merrill Lynch, Citi, and Deutsche Bank.
For the IPO sector to get interesting in biotech and biohealth companies, we will need to see more IPO filings in the sector. There just has not been anywhere close to enough filing activity to get overly excited here. Then there is the political angle over healthcare reform, which is looking more and more just like health insurance reform. But that is still on the minds of many as a risk today. The case for IPOs in biotech and biohealth sectors is not a dead case. It is just far from solid. And even farther from busy.
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JON C. OGG
October 10, 2009
