The window for biotech initial public offerings cracked open several times in 2007, letting out a cool burst of post-JPMorgan deals, a fresh breeze of spring offerings and a gust of fall pricings.

The pattern mirrored that of 2006, when 34 life science companies raised $1.8 billion through IPOs, according to data from BioWorld Snapshots. In 2007, the selective opening and closing of the window allowed 39 companies to raise $2.4 billion, and Banc of America investment banker Mark Dempster said there is "reason to believe" we'll see similar opportunities every few months through 2008.

Michael Brinkman, managing director of life science investment banking at CIBC World Markets, predicted the first IPO window will once again follow next week's JPMorgan Healthcare conference, but that it will not be a "massive rush." Instead, he pointed to "really high-quality stuff in drafting" that could drive activity later in the first quarter.

At the end of December, 18 biotech companies had filed for and were waiting to price IPOs, up from 11 at the close of 2006. As in recent years, bankers expect most of those that make it out one of the 2008 windows to price below or at the low end of their original filing ranges.

"Unfortunately, that's a trend that has continued since 2003 and . . . is here to stay," Dempster said.

Although the average IPO value increased to $62 million in 2007 from $53.2 million in 2006, most companies still got less than they wanted. In the fourth quarter, only Genoptix Inc. priced above its range, but its revenue-generating cancer diagnostic business model is a far cry from a traditional biotech. (See BioWorld Today, Oct. 31, 2007.)

In the past year or so, Dempster noted, biotech companies' opinions of their value have "come closer" to investor opinion of that same value, but "there's still a divergence." He attributed some of the pricing pressure to the fact that the investor universe for biotech IPOs is smaller than for most other industries, resulting in less demand - particularly given recent performance.

During the recent BIOCOM Investor Conference, Rachel Leheny, co-founder and principal of Caxton Advantage Venture Partners, said another problem is mezzanine rounds being done to close to the IPO.

"Investors are saying, 'The last mezzanine round was done at $7 a share, so we'll give you $7.50,'" she said.

Despite low pricing, biotech IPO step-ups in the last four years consistently have averaged 1.5 times above the last private round, Montgomery & Co. Managing Director George Montgomery said during the BIOCOM conference. But in the same period, merger and acquisition step-ups have averaged 2.5 times to four times above the last round, he noted.

That disparity - driven by pharma's insatiable appetite - resulted in 39 merger-and-acquisition deals worth $41.3 billion as of Nov. 1, Montgomery said. The frenetic pace is "likely to continue" in 2008, he predicted, but its effect on the IPO markets remains to be seen.

On the one hand, pharma acquisitions of big, publicly traded biotechs - like AstraZeneca plc's purchase of MedImmune Inc. - could free up funding for investment into IPOs. "The money has to be reinvested somewhere," Brinkman said. (See BioWorld Today, April 24, 2007.)

Yet on the other hand, Brinkman noted, acquisitions of private companies could decrease the number of high-quality IPO candidates. Recently, Reliant Pharmaceuticals Inc. and Adnexus Therapeutics Inc. both withdrew IPO bids due to acquisitions by GlaxoSmithKline plc and Bristol-Myers Squibb Co., respectively. (See BioWorld Today, Sept. 25, 2007, and Nov. 26, 2007.)

Conversely, acquisitions actually might increase the number of new private biotech companies being formed if the trend of post-M&A spinouts continues. Last year, Amgen Inc. spun out Relypsa Inc. after acquiring Ilypsa Inc., and Merck & Co. Inc. spun out Sequel Pharmaceuticals Inc. after acquiring NovaCardia Inc. (See BioWorld Today, Sept. 28, 2007, and Oct. 31, 2007.)

"In every deal we've done, we've spun something out," Jay Hagen, managing director of Amgen Ventures said during the BIOCOM conference. "The reality is in M&A, one asset will pay for 90 percent of the deal."

Another trend that could increase the number of biotech IPO candidates is the flood of private funding available. Private biotech companies raised about $6.3 billion in 2007, according to BioWorld Financial Watch, continuing a steady increase over previous years. The glut of money available means more companies are being founded and obtaining the funds to sustain themselves until they can go public.

At the same time, venture capitalists have begun putting some of their money into IPOs rather than viewing them as a liquidity event, Brinkman said.

The wild card for the 2008 IPO class could turn out to be the backdrop against which they have to perform. Volatility in the broader markets, conservatism at the FDA, and concerns about the election could all play a role.

Yet Brinkman maintained that the biggest influence on the IPO markets in the year ahead will come from within the industry.

It all boils down to how much good data and positive news flow the year brings, he said.

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