Two more biotech companies went public Thursday, but as has been the case lately, their offerings brought in less than first expected.
Critical Therapeutics Inc. and Acadia Pharmaceuticals Inc. priced their initial public offerings, raising $42 million and $35 million, respectively. Upon filing for their IPOs about two months ago, though, each projected significantly higher amounts - $103.5 million for Critical Therapeutics and $86.25 million for Acadia. Their pricings represent the 14th and 15th biotech IPOs of the year in the U.S., and nine other companies previously priced below their range, as well.
"This is not a robust market," Stan Fleming, a managing member at Forward Ventures in San Diego, told BioWorld Today. "Earlier in the window, we saw a number of companies repricing significantly below the range to get out, and you think by now they would have learned to price their deals closer to where the market wants to see them. So when you have companies coming out at the low end of the range or below the range this late in the window, I think it's an indication that pricing is very difficult and challenging in this market."
He added that such companies are going public at prices more traditional in venture capital investment, which these days remain depressed relative to prior periods. Recounting a recent conversation, he said that companies' pre-IPO valuations ranged between $300 million and $375 million in the past, but now hover between $200 million and $275 million.
Lexington, Mass.-based Critical Therapeutics sold 6 million shares at $7 apiece. By the end of Thursday's trading session, its stock (NASDAQ:CRTX) gained 10 cents to close at $7.10. It climbed as high as $7.65, on volume of about 1.7 million shares.
In its prospectus, the company said it would spend proceeds on activities related to the eventual commercialization of its products. Figuring prominently is its plan to establish a sales force and manufacturing capabilities required to launch its lead product, Zyflo (CTI-02), an immediate-release formulation of an FDA-approved asthma product called zileuton. (See BioWorld Today, March 22, 2004.)
Critical Therapeutics licensed worldwide rights to the product from Abbott Laboratories, of Abbott Park, Ill., as well as two other formulations of zileuton. The company expects to submit a new drug application for a controlled-release, twice-daily version of zileuton for asthma in 2006. It expects to begin a Phase II trial this year to evaluate Zyflo's use in treating chronic obstructive pulmonary disease, and also is developing an intravenous version of zileuton for emergency room administration to treat acute exacerbations of asthma.
The company also granted its underwriters a 30-day, 900,000-share overallotment option. Managing underwriters include New York-based SG Cowen & Co. LLC, acting as sole book-running manager, along with co-managers CIBC World Markets Corp., also of New York; Piper Jaffray & Co., of New York; and Leerink Swann & Co., of Boston.
Fleming noted that it's not unusual to see newly public companies trade relatively flat for six months before investor interest builds and share values begin to creep upward.
"We could see that phenomenon, but I don't think yet, on the early guys that are out," he added. "They seem to be laying there or trading down. [Trading up is] a possibility, though I'd have to say it's not a probability at this point."
San Diego-based Acadia, which is developing small-molecule drugs for central nervous system disorders, sold 5 million common shares at $7 apiece. By the end of the session, its stock (NASDAQ:ACAD) traded down to $6.70. It climbed as high as $7.50 during the day on about 1.9 million shares.
In its prospectus, Acadia said it would use the majority of proceeds to fund research and development activities, including clinical trials within its three internal development programs. Its pipeline includes ACP-103, which is in Phase II trials for treatment-induced dysfunction in Parkinson's disease, as well as ACP-104 and ACP-103, two schizophrenia products expected to enter Phase II studies later this year. (See BioWorld Today, March 2, 2004.)
Acadia first tested the IPO waters years ago, filing in December 2000 for a proposed $75 million offering before withdrawing the registration in the fall of 2001. (See BioWorld Today, Dec. 27, 2000.)
The company also granted its underwriters a 30-day, 750,000-share overallotment option. New York-based Banc of America Securities LLC is acting as sole book-running manager, Piper Jaffray is acting as co-lead manager and co-managers include JMP Securities LLC, of San Francisco, and Adams, Harkness & Hill Inc., of Boston.
For the 19 biotech companies still in the IPO queue, the future might be similar.
"I don't think the market is significantly changed from the fall," Fleming said. "It's a market that's really never caught fire or developed a lot of momentum. Technically, the window is [open] and we're getting companies public, but the pricing and volume are anemic. So the good news is that we're getting companies public; the bad news is that we're not generating much liquidity."
He noted that companies run a risk in accepting lower valuations that might not provide enough funding to get to their next milestone. Should they seek added funding during a subsequent down-market, they will find few financing opportunities and potentially create a drag on the sector.
But on a more positive note, he added that companies going public now, despite low valuations, could become familiar to public investors and reap rewards during secondary offerings down the road.
"It could go either way," Fleming said.