Here Comes a Slew of Biotech IPOs



By Hal Plotkin
Silicon Valley Correspondent

Despite the sector’s unprecedented choppiness, analysts say there is reason to be optimistic about the slew of biotechnology firms going public over the next two weeks, because many of them are further along in the development curve than earlier groups of IPO-bound life-sciences firms.

“In general, the class of IPOs from this group is more advanced than previous classes of IPOs, in terms of both clinical development and toolkit companies,” says Karen Bernstein, the editor of Biocentury, a leading biotech-industry newsletter based in San Carlos, Calif. “They’re also going out in a market the likes of which has never been seen before.”

The six biotech firms slated to go public soon are Adolor, Allos Therapeutics, DrugAbuse Sciences, IntraBiotics Pharmaceuticals, Luminex and Rigel Pharmaceuticals.

Late Thursday, InterMune Pharmaceuticals Inc. {ITMN} priced its 5.5 million share offering at $20, above its most-recent range of between $17 and $19, up from $14 to $16.

Investors bid InterMune higher in the stock’s debut Friday.

InterMune Pharmaceuticals 52-Week Stock-Performance Chart

Based in Palo Alto, Calif., InterMune Pharmaceuticals has the exclusive U.S. rights to market an interferon gamma-1b injection drug called Actimmune, which it hopes will be useful in a range of disorders including osteoporosis, pulmonary disorders, bacterial and fungal infections and cystic fibrosis. The firm estimates an addressable market of at least $3.5 billion annually in the United States, should the compound prove efficacious. Advanced-stage human clinical trials are currently under way.

InterMune Pharmaceuticals posted a loss of $6.2 million on revenue of $556,000 for the year ended Dec. 31, as compared with a loss of $6 million on zero revenue during the prior year.

The performance of biotech IPOs used to be a running joke in the industry. Every single biotech firm that went public though 1992, with the exception of Genentech Inc. {DNA}, ended up trading below their offering prices six months later, according to the Medical Stock Technology Letter, based in Berkeley, Calif.

“Traditionally, you didn’t make money in the aftermarket once they’ve gone public,” says Jim McCamant, editor of the Medical Technology Stock Letter. “It hasn’t usually been the best time to buy them.”

Newly public biotech firms have been faring better more recently. Even after last Tuesday’s dramatic biotech stock selloff, the nine biotech firms that went public after last Nov. 1, are still up more than 230 percent over their initial offering prices as a group, according to Biocentury. That group includes ACLARA BioSciences Inc. {ACLA}, Antigenics Inc. {AGEN}, Caliper Technologies Corp. {CALP}, Diversa Corp. {DVSA}, EVOTEC BioSystems AG {ETV}, Maxygen Inc. {MAXY}, Sequenom Inc. {SQNM}, Symyx Technologies Inc. {SMMX} and Tularik Inc. {TLRK}.

“The climate for biotech IPOs is still very receptive,” says Eric Schmidt, an analyst at SG Cowen Securities Inc., based in Boston. “The evidence for that is the very recent ACLARA offering, which did quite well.”

“It’s not a bad time to be taking these firms public,” says Matthew Geller, an analyst at CIBC World Markets Corporation, based in New York. “The sector is for real. But it’s an area where investors really need to do their research. A company could be making a billion dollars in five years, or it could be making nothing. That makes it very hard to value these companies and explains why even small news items can make a big shift in the market.”

Analysts say biotech investors would be well advised to keep their seatbelts fastened and prepare for the wild ride to continue at least over the next two months or so. The American Association for Cancer Research and the American Association of Clinical Oncologists hold their annual meetings in late April and late May, respectively. Announcements of clinical results and research plans at those gatherings often make news and move the stocks of the entire interrelated biotech sector, since fully 25 percent of all biotech drugs currently in development are aimed at various forms of cancer.

“We’re probably going to see more volatility over the short term,” McCamant says. “After that, it could begin to settle down.”

Analysts say that two of the pending biotech IPOs, IntraBiotics Pharmaceuticals and Rigel Pharmaceuticals stand out among the current group now jostling to go public.

Based in Mountain View, Calif., IntraBiotics Pharmaceuticals is developing new antibacterial and antifungal drugs for the prevention of serious infectious diseases. The company has two new compounds that are entering phase III clinical trials, the final step in the lengthy testing process that will determine their efficacy now that the safety of the new drugs has already been established. The big hope is these new drugs, which have a different mechanism of action than previous antibiotics, might be the solution to the growing problem of multi-drug resistant bacterial infections.

“IntraBiotics has a really solid management team and an unusually broad product pipeline,” says Douglas Lind, an analyst at Morgan Stanley Dean Witter, based in New York, whose firm isn’t associated with the IntraBiotics’ IPO. “They’re going to be the one you might want to focus on.”

IntraBiotics Pharmaceuticals posted a loss of $23.1 million on revenue of $7.8 million for the year ended Dec. 31, as compared with a loss of $17.3 million on revenue of $6.3 million during the prior year.

Meanwhile, Rigel Pharmaceuticals, based in South San Francisco, Calif., has developed a new and faster way to find novel drug targets and to validate the role of those targets in diseases without first knowing the identity or sequence of the genes involved. The firm focuses on developing small molecule drugs that can be administered orally for treatment of asthma, allergies, immune system disorders, transplant rejection, arthritis, inflammatory bowel disease and tumor growth.

Firms collaborating with Rigel Pharmaceuticals include Cell Genesys Inc. {CEGE}, Janssen Pharmaceutica Products LP, Novartis AG {NVTSY} and Pfizer Inc. {PFE}.

“Rigel is the one I’ve been intrigued by,” McCamant says. “Their deal with Cell Genesys is a good validation of their technology.”

Rigel Pharmaceuticals posted a loss $12.3 million on revenue of $8.9 million for the year ended Dec. 31, as compared with a loss of $10.6 million on revenue of $28,000 during the prior year.

Here’s a rundown of the other biotech firms about to go public:

Based in Malvern, Pa., Adolor is developing several new drugs designed to treat pain, without the side effects of current pain medications. An estimated $26 billion is spent on pain management medications worldwide each year. Adolor has product candidates in all three phases of testing, including compounds that it hopes will reduce or eliminate the nausea, sedation and bowel dysfunction often caused by currently available pain medications.

Adolor posted a loss of $10.1 million on revenue of $11,000 for the year ended Dec. 31, as compared with a loss of $8.8 million on revenue of $150,000 during the prior year.

Allos Therapeutics
Based in Denver, Allos Therapeutics is about to enter phase III clinical trials for its new anti-cancer drug that is designed to increase the efficiency of existing cancer treatments by making it easier for those treatments to target and destroy cancer cells.

The novel pharmaceutical is designed to work by increasing the oxygen content in cancer cells, which makes them more responsive to treatment, without the drug having to actually enter the cancer cells. The first efficacy tests are being conducted on patients with brain metastases, or tumors that have spread to the brain. If successful, the approach will be applied to the treatment of a variety of other major diseases.

Allos Therapeutics posted a loss of $10.4 million on zero revenue for the year ended Dec. 31, as compared with a loss of $8.5 million on zero revenue during the prior year.

DrugAbuse Sciences
Based in Menlo Park, Calif., DrugAbuse Sciences claims to be the first biotech company focused solely on developing new drugs to combat alcohol and drug abuse, which is estimated to consume nearly 4 percent of the U.S. gross national product each year. There are currently very few effective medications available for the treatment of addiction and substance abuse. A number of larger pharmaceutical firms are also targeting the same market, but the founders of DrugAbuse Sciences hope their more-narrow focus on the potentially lucrative niche will pay off more quickly and reliably.

DrugAbuse Sciences posted a loss of $6.2 million on revenue of $1.2 million for the year ended Dec. 31, as compared with a loss of $1.2 million on revenue of $810,000 for the prior year.

Biotech toolkit company Luminex, based in Austin, Texas, is selling a new compact laboratory instrument, called the LabMAP system that is able to simultaneously perform up to 100 bioassays on a single drop of fluid.

Bioassays are required in a broad range of tests to discover new drugs, identify new genes, or for routine diagnostic procedures, such as measuring cholesterol levels.

About 63 life-sciences operations, including Eli Lilly & Co. {LLY}, Genentech, Glaxo Wellcome plc {GLX} and both the Centers for Disease Control and the National Institutes of Health, had already purchased systems from the firm by the end of January. The company plans to develop additional products to serve the life-sciences and pharmaceutical-development industry.

Luminex posted a loss of $8.4 million on revenues of $3.1 million for the year ended Dec. 31, as compared with a loss of $5.5 million on revenues of $386,000 during the prior year.

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