Staff Writer

The biotech industry watched closely on Wednesday as Ironwood Pharmaceuticals Inc., the first true biotech to attempt an initial public offering in the current window, made its debut.

Ironwood priced 16.7 million shares at $11.25 per share, generating gross proceeds of $187.9 million. That's the biggest take of any true biotech IPO since Ribapharm Inc.'s $260 million deal in 2002.

Yet Ironwood's IPO price fell significantly short of the firm's $14 to $16 target range, and existing investors picked up 8.9 million of the shares being sold. Entities affiliated with Morgan Stanley Investment Management alone planned to buy 8.3 million shares - nearly half of the entire IPO volume - according to an SEC filing on Tuesday.

That caused folks to question just how hungry the market is for biotech offerings. While it's not uncommon for insiders to buy 10 percent to 20 percent of an IPO, 50 percent is somewhat unusual and could indicate low demand from outside buyers, as could the lowered price, sources said.

But a portfolio manager who participated in the deal said the fact that Ironwood missed its pricing target is a red herring, because the target doesn't mean anything. It's up to the market to determine value, and they gave Ironwood a respectable $1.1 billion.

The portfolio manager added that Ironwood's IPO was always planned as a heavily inside deal and was "tightly distributed" to a select group of outside investors. The deal was rumored to be four times oversubscribed.

Once Ironwood's shares (NASDAQ:IRWD) hit the market at 1 p.m. EST, they held up fairly well. The stock never dipped below its $11.25 opening price on Wednesday and ended the day at $11.65, a gain of 3.6 percent.

What does that mean for other biotech IPO hopefuls?

"There's interest from buy-side investors in seeing new stories," said Josh Muntner, managing director of health care investment banking for ThinkEquity. But those stories will have to show meaningful clinical results and clear value-creating milestones, he noted.

Ironwood (formerly known as Microbia) fits the bill. The Cambridge, Mass.-based firm's lead drug linaclotide generated positive Phase III data in chronic constipation, and two pivotal trials in irritable bowel syndrome with constipation are ongoing, with data expected later this year. The drug has attracted lucrative partnerships with Forest Laboratories Inc., Astellas Pharma Inc. and Laboratorios Almirall SA.

The portfolio manager called Ironwood "a wonderful company at a very fair price" - referencing Warren Buffett's saying that it's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. "If Warren Buffett ever decided to run a biotech, it would be Ironwood," he added.

Many industry experts had pegged Ironwood as the strongest of the biotech IPOs currently on file. The list includes antibiotic player Trius Therapeutics Inc., cardiovascular company Anthera Pharmaceuticals Inc., oncology firm AVEO Pharmaceuticals Inc., ophthalmology company Alimera Sciences Inc., stem cell developer Aldagen Inc., organ regeneration company Tengion Inc., diagnostic/specialty firm Prometheus Laboratories Inc., diagnostics company Med Biogene Inc. and biocatalyst technology firm Codexis Inc.

Before Ironwood, the biotech IPO window had been shut since Bioheart Inc.'s paltry $5.8 million IPO in early 2008. Although three U.S. drug companies priced IPOs in the "new window" of 2009, none provided the sought-after barometer of investor interest in biotech. First-pricer Cumberland Pharmaceuticals Inc. and second-pricer Talecris Biotherapeutics Holdings Corp. both boast revenues from marketed products, something most true biotechs lack. Meanwhile, third-pricer Omeros Corp. is arguably outside of biotech's sweet spot, with its generic combination drugs for surgical indications. (See BioWorld Today, Aug. 12, 2009, Oct. 2, 2009, and Oct. 9, 2009.)

The fact that Ironwood got out the window and didn't plummet in its first day of trading is a good sign, even if the biotech got less money than it was aiming for. Sources say it may still be enough so that Ironwood never has to fundraise again.

Buy-side investors say it's now game-on for great biotech companies raising the right amount of money. But determining that right amount of money can be tricky. "My mantra when talking to private companies has been to try to set a reasonable valuation relative to public comps and M&A alternatives so that the buy-side sees an appropriate reward potential," Muntner said.

J.P. Morgan Securities Inc., Morgan Stanley & Co. Inc. and Credit Suisse Securities LLC served as joint book-running managers on Ironwood's IPO, with BofA Merrill Lynch and Wedbush PacGrow Life Sciences acting as co-managers. (See BioWorld Today, Nov. 24, 2009.)

In other news, Anthera set its IPO price range on Wednesday. The Hayward, Calif.-based biotech plans to offer 4.6 million shares priced at $13 to $15 each, the midpoint of which would generate $64.4 million.

In other financing news:

• Achillion Pharmaceuticals Inc., of New Haven, Conn., said underwriters of its recently announced public stock offering exercised their overallotment option to an additional 1.54 million shares. That brings the total offering to 11.8 million shares priced at $2.08 each, resulting in gross proceeds of $24.6 million. The money will push protease inhibitor ACH-1625 through Phase IIa for hepatitis C. (See BioWorld Today, Jan. 25, 2010.)

• Sinovac Biotech Ltd., of Beijing, closed its previously announced public offering of 11.5 million shares priced at $5.75 each, for net proceeds of $62 million. Sinovac develops vaccines against infectious diseases.

• Spectral Diagnostics Inc., of Toronto, increased its previously announced C$14 million private placement to C$19.5 million (US$18.38 million). The company sold 48.75 million units for C40 cents apiece, with each unit consisting of one common share and one-half of a four-year purchase warrant with an exercise price of C60 cents. Proceeds will advance sepsis drug toraymyxin and an endotoxin assay, slated for pivotal trials this year.

• Uluru Inc., of Addison, Texas, is raising $1 million through the registered direct sale of 5 million shares priced at 20 cents each. Rodman & Renshaw LLC managed the at-the-market offering. Proceeds will support Uluru's wound management and oral care products.

• Viroblock SA, of Geneva, raised an undisclosed amount of Series B funding for its preclinical antiviral programs. The round was led by Fongit Seed Invest SA, with private investor Peter Pfister, Initiative Capital Romandie SA and BlueOcean Ventures also participating. Viroblock also appointed Jamie Paterson, former chief commercial officer at Neurim Pharmaceuticals Ltd., as CEO.