“Caveat emptor” is a warning hardly needed by seasoned investors in biotech, many of whom understand the failure-fraught industry and are cautious buyers, when they can be persuaded to buy at all.

But, as broader-based interest by deep pockets with a willingness to gamble fuels the boom in initial public offerings (IPOs), longtime analyst Adam Cutler has a “caveat venditor” – let the seller beware – for companies eager to get in line.

“We’ve seen over and over again that [IPOs] tend to move in cycles,” said Cutler, who has held positions at Credit Suisse, Canaccord Genuity, JMP Securities and Banc of America Securities. “It’s hard for anybody to predict when that cycle turns, and we start to see some of the interest contract and the stocks retrench a bit, but it is inevitably going to happen at some point.”

When it does, firms that have gone public on the strength of backing by fickle generalists could find themselves in trouble. “The trick is to make sure that companies have a strategy in place to make sure that they get the attention and interest from investors over a longer period of time,” said Cutler, now managing director at The Trout Group LLC.

Latest to join the IPO queue is Vital Therapies Inc., which filed to raise as much as $86.25 million, though the firm did not say how many shares might be sold or at what price range. Proceeds would help pay for a Phase III program with Elad, an external, artificial liver system based on human liver-derived cells.

Previously known as Hepatix Inc. and then Vitagen Inc., the company is testing Elad in alcohol-induced liver decompensation first. If the VTI-208 trial, which began enrolling in March, proves successful, others will evaluate Elad in support for patients undergoing liver transplants and resection.

Meanwhile, later this year, Vital expects to start enrolling in VTI-210, a randomized, controlled Phase III experiment in 120 subjects with acute alcoholic hepatitis who have failed seven days of steroid therapy. Preliminary data from VTI-208 are expected in 2015, with results from VTI-210 rolling out the same year or in 2016.

A Phase III study in fulminant hepatic failure (acute liver failure) is set to begin this year, too. The 126-patient trial is expected to involve at least 25 sites in the U.S. and Europe that are already participating in either VTI-208 or VTI-210.

In Elad therapy, blood is drawn from the patient by way of a central venous line and then passes through the bedside unit tubing, where plasma ultrafiltrate is generated from whole blood using the ultrafiltrate generator. The patient’s plasma ultrafiltrate then passes into the four cartridges where it contacts Vital’s C3A cells – immortal cells, from a specially optimized bank – after passing through fibers which allow appropriate two-way transfer of toxins, metabolites and nutrients, as would happen in a normal liver.

Treated plasma ultrafiltrate is filtered, reconstituted with blood cells, and returned to the patient. Therapy is done in a single session of continuous treatment, lasting between three and 10 days.

Vital Therapies boasts plenty of late clinical activity, but “one of the things that’s been somewhat remarkable about the current IPO boom is the number of early stage companies that have been able to get out and garner pretty healthy valuations,” Cutler said. “That’s unusual. Historically, there tends to be a recipe for IPO companies. They usually need to have at least proof-of-concept data, if not be in or close to Phase III, with some relatively clearly defined timeline for being on the market.”

Some firms have been able to launch IPOs on the strength of well-known industry names at the helm. “That, in a number of cases, has been enough to attract a significant amount of investor interest,” Cutler said. All the better when proven leadership is paired with intriguing – even if nascent – science.

An improving economy overall adds incrementally more oomph to the IPO push. “That’s definitely what we’re seeing right now, and we’re hearing from a lot of investors on the buy side that, as the market broadly has run up, they’re looking for places where they can still earn significant returns,” Cutler told BioWorld Today. “A lot of the generalists have been attracted to biotech for that reason.”

As long as the performance generally of IPOs continues to be strong, “the process is somewhat self-perpetuating,” with more funds arising to bet more on biotech, he said. The obvious dark cloud hovers in Washington, where a government default could rattle markets that have been largely impervious thus far.

Vital intends to trade on the Nasdaq under the ticker “VTL.” Joint bookrunners for the IPO are William Blair & Co. and Credit Suisse.

In other financings news:

• Arrowhead Research Corp., of Pasadena, Calif., said it closed a private offering of common and convertible preferred stock for net proceeds of $60 million. The company issued 3,071 ,672 shares of common stock at $5.86 per share and 46,000 shares of Series C convertible preferred stock were issued at $1,000 per share. Each share of preferred stock is convertible into 170.6 shares of common stock at a conversion price of $5.86 per share of common stock. Jefferies LLC and Piper Jaffray & Co. acted as joint placement agents for the offering and Trout Capital acted as a financial advisor. The company is developing ARC-520, an RNAi therapeutic targeted at hepatitis B virus infection.

• Cytrx Corp., of Los Angeles, said it sold an additional 1 .5 million shares as a result of underwriters exercising their overallotment option granted in connection with the company’s public offering. The final gross proceeds are approximately $25.9 million. (See BioWorld Today, Oct. 10, 2013.)