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Slowdown casts doubt on biotech offerings

The biotech IPO thoroughbred that burst out of the gate last month has stumbled.

After a two-year capital drought, seven biotechnology and life sciences companies made initial public offerings in October and early this month. Now the newly issued stock of six of those companies is underwater -- and one, Acusphere Inc. of Watertown, has lost 50 percent of its value since going public at $14 on Oct. 7, according to its price at the close of the market Friday.

The disappointing performance has biotech companies reconsidering their plans for public stock offerings. Several planned offerings have been postponed or withdrawn in recent weeks, and some financiers are wondering if the IPO window has, at least temporarily, slammed shut again.

"If your company is not making money, you're not a well-loved IPO in this market," said Kathleen Smith, portfolio manager of the Renaissance IPO Plus Fund, a mutual fund based in Greenwich, Conn., that invests in initial public offerings.

"It's early in the recovery of the IPO market, and it's going to be a while until we build up enthusiasm for companies that aren't going to make money until far in the future."

That, for the moment, would appear to doom many of the biotech IPOs. Most of the companies that went public have products or therapeutics in late-stage clinical trials.

It may take years of additional scientific and regulatory work before those products are approved for sale by the US Food and Drug Administration, when the firms can begin earning revenues.

The 42 IPOs completed so far this year have generated an average return of 27 percent, according to Renaissance Capital, parent of the IPO Plus Fund.

In contrast, the six biotech IPOs that have posted declines are down an average of nearly 23 percent.

The sole life-sciences gainer, Genitope Corp. of Redwood City, Calif., is up 30 percent since its Oct. 29 offering. The offerings raised an average of $64 million each for the seven companies, according to OrbiMed Advisors LLC, a New York fund manager specializing in life sciences.

John Thero, chief financial officer of Acusphere, declined to comment on the stock's performance.

"I can say a lot about why we're excited about our business, but as to why people are selling, that's something investors and bankers are better equiped to handle," he said.

The offering raised $47.3 million for the firm, which is developing drugs to be delivered using unique porous microparticles.

Several venture capitalists said that while investor interest has returned for life sciences issues, it just hasn't reached the level that can easily propel a stock upward after the offering.

Michael Lytton, general partner at Oxford Bioscience Partners, a Boston healthcare venture fund, compares the recent IPOs to those that were made at the height of the biotech market in 2000, when more than 50 firms offered shares to the public.

Underwriters for the offerings seek to create excess demand for shares. Since some interested investors won't be able to buy IPO shares, there will be pent-up demand that can push the stock up on the first day of trading.

But there hasn't been enough appetite among investors to create such excess demand, Lytton said.

"In a cautious market, the syndicates only cover the actual shares being offered, and effectively there is no excess demand," he said.

The poor market performance has put the brakes on new offerings.

Aderis Pharmaceuticals Inc. of Hopkinton, a developer of drugs for Parkinson's disease and other conditions, filed to go public in August, and planned to price its shares around Oct. 20.

But a partner in a drug development program said it had pending news on a clinical trial it was pursuing with Aderis, and the company waited five days for the news to come out. It was positive clinical results.

But in the meantime, the shares for the new IPOs continued to decline, casting doubt on the appetite for Aderis shares, said Ken Rice, the company's chief financial officer.

Moreover, the company still has $24 million in the bank -- enough to carry it through several more years. Aderis decided to withdraw the offering.

"We don't need to take a deal at any price," said Rice.

When might the company refile to offer shares?

"It won't be any time soon," he said.

A Portland, Ore., firm, Avi BioPharma Inc., filed Oct. 29 to sell an additional 7.5 million shares in a secondary offering. On Nov. 14, it yanked the offering.

"Given our current strong cash position, continued clinical progress and upcoming milestones, our board felt it was prudent to wait out this temporary market downturn," said chief executive Denis R. Burger in a statement.

TolerRx Inc. of Cambridge last week postponed an offering filed Aug. 26. But the company said the delay was the result of "newly available data" from a preclinical drug trial that needed to be reviewed.

The current slowdown is what some investors feared when anticipation was building this summer in anticipation of a flurry of biotech stock offerings.

If the first companies to reach the market performed poorly, they predicted, investor enthusiasm for additional offerings would quickly wain.

Still, some say that despite the slowdown, the prospects for biotech firms raising funds remains far better than at any time in recent memory.

"It's a marginal market for IPOs at the moment, but marginal is better than anything we've had for the past three years," said Peter Feinstein, managing director of BioVentures Investors LLC, a healthcare and biotech venture capital fund in Cambridge.

"There's not a lot of enthusiasm for highly speculative stocks, but it's not the nuclear winter we had a year ago."

Jeffrey Krasner can be reached at

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