Monday, January 31, 2011

Let It Snow, Let It Snow, I-P-O

Watch out. Here it comes. Unless half the United States turns into an Otter Pop in the next 48 hours, a dozen companies could join the public markets this week, and seven of them are health-care related, says Renaissance Capital. Three of them are biopharma firms: Pacira Pharmaceuticals, AcelRx Pharmaceuticals, and Endocyte.

With the crazy discounts companies were forced to endure to cross the magic IPO bridge in 2010, we're curious to see what the new calendar year brings. (Other than tons of snow and ice.) As this blogger noted in the current issue of The Pink Sheet, the aforementioned AcelRx and Pacira, plus one more company a bit farther behind, Supernus Pharmaceuticals, are all reformulation/delivery plays. Pacira and Supernus are spinouts with technology already incorporated into commercial products at the time of the spinout. All are five years old or less, a relatively fast turnaround for a venture exit. That is, if their venture backers can exit when their post-IPO lockup ends.

Of the 14 biopharmas to debut since the IPO window re-opened in late 2009, only five have stock prices above their original IPO price (as of Jan. 26). The biggest gainer is Aveo Pharmaceuticals, up 64% from its March 11 debut at $9.

But looks can be deceiving. Some IPOs debuted only after drastic haircuts. Take the case of Zogenix, which is up 25% from its IPO. But it wanted to sell 6 million shares in the $12 to $14 per share range; it ended up on November 22 selling 14 million shares at $4 each.

The discounts have had palpable effects.
Trius Therapeutics delayed its debut a few months as it reworked its Phase III plans with the FDA. In August the antibiotic developer sold 10 million shares at $5 each, a big step down from the 6 million shares at $12 to $14 each it hoped to sell. The extra $25 million or so was supposed to pay for a second Phase III trial comparing its lead compound torezolid to Pfizer's standard-of-care for skin infections, Zyvox (linezolid), according to president and CEO Jeffrey Stein. But Trius had to settle for $50 million and one trial, and it will now look to sell some ex-US rights or do a secondary offering to raise cash for a second trial. All of which means the two trials will be roughly in series, not parallel, and the data FDA requires to get an antibiotic approved -- requirements the agency has been overhauling for more than two years -- will be that much farther out.

Enter the delivery hopefuls. AcelRx is testing an oral form of the powerful painkiller sufentanil that a post-surgical patient self-administers in tab form under the tongue, meant as an alternative to press-a-button IV drips. Pacira is also in pain, with a non-opioid analgesic formulated in its Depofoam technology. Supernus is applying extended-release technology it spun out from Shire in 2005 to schizophrenia drugs.

Reformulation is unlikely to rescue beleaguered biotech investors, but if this week's crop of companies have successful debuts it will surely embolden VCs who've shifted their portfolios in recent years away from the long, tough slog of drug discovery and development.
Joining AcelRx, Pacira and Endocyte in the chute are two health services companies, a dental implant maker, and a joint replacement maker.

Speaking of long lead times, look no further than the one company we've not really discussed here: Endocyte has a platform for small molecule drug conjugates, and it's got a folate receptor agonist in Phase II against ovarian and lung cancer. It was founded in 1995 and raised its first venture round in 1996.

Image courtesy of the Weather Channel.

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