By Karen Pihl-Carey
A couple months ago, the stories were different. Dozens of companies sought millions of dollars in initial public offerings or secondary offerings, and many of them raked in proceeds from a generous market.
With intentions of taking advantage of the opportunity, dozens more sought to do the same thing. But they were too late. By mid-March, investors began selling their stock and prices fell to the floor. What was $100 million has become $50 million today.
Just ask Genome Therapeutics Corp., the most recent company to cancel its follow-on public offering. The company, based in Waltham, Mass., wanted to raise $103.5 million through the offering of 3 million shares. That estimate was based on a price of $36.875 per share, the company's closing price on March 15. (See BioWorld Today, March 17, 2000, p. 1.)
What the company didn't anticipate was the reaction of investors to a statement made about the same time as the registration filing by President Clinton and British Prime Minister Tony Blair reaffirming the goal of universal access to data generated by the Human Genome Project. That news sent biotech stocks down and the trend continued, as investors who had sent the stocks up then shied away from the sector. (See BioWorld Today, March 16, 2000, p. 1.)
The company watched its stock (NASDAQ:GENE) go up and down, but mostly down, the next three weeks to close Friday at $14.875, down $3.75. At that rate, its offering would raise about $50 million, a mere half of what it wanted. It canceled its offering late Thursday "in light of recent market volatility and current market conditions," but said it intends to file an amendment to the registration statement to convert it to a shelf registration statement.
"The shelf registration gives us the flexibility either to commence financing when the market stabilizes, or to use it for acquisitions if that becomes more appropriate," said Christopher Taylor, director of investor relations for Genome Therapeutics. "We ended the second quarter in February with about $35 million, and had a net loss of [$73,000], so we're not in a position where we absolutely need to raise cash in a hurry. So with the volatile market, it made sense to postpone the offering."
Taylor said the company's cash could fund its operations "for a good amount of time," even though the financing would have helped Genome Therapeutics accelerate research in certain areas. "We'll continue with those programs, just not at the same pace we could have."
Genome Therapeutics had intended to use funds from its public offering to build its pharmacogenomics program and increase its infectious disease work. The $103.5 million was supposed to last the company at least two years, according to its prospectus.
The company has about 20.6 million shares outstanding, Taylor said.
When asked why Genome Therapeutics has become the most recent addition to a handful of companies that have pulled or postponed their offerings, CIBC World Markets Corp. analyst Matthew Geller put it bluntly: "The market [stinks]."
Geller said that until the market picks up again, "I think we'll see numerous cancellations or postponements."
Analysts have said that an ignorant investment community misinterpreted Clinton and Blair's statement, believing it meant companies would not be able to get gene patents. Clinton clarified the statement in early April, saying that basic information unearthed from the Human Genome Project should be widely available, but researchers who discover a commercial application should still be able to get a patent on it. (See BioWorld Today, April 6, 2000, p. 6.)
Clinton's clarification sent some stocks surging, but most have not regained the value they had earlier this year.
At the BIO 2000 conference last month in Boston, a panel of analysts said the stock downswing is not likely a lasting trend. Peter Ginsberg, managing director of U.S. Bancorp Piper Jaffray Inc. in Minneapolis, said the biotech industry is just entering the growth phase of its life cycle as it launches several products. (See BioWorld Today, March 29, 2000, p. 4.)
The withdrawals of follow-on offerings started more than three weeks ago with Symyx Technologies Inc., of Santa Clara, Calif. Symyx was followed by Aurora Biosciences Corp., of San Diego; Lynx Therapeutics Inc., of Hayward, Calif.; LJL BioSystems Inc., of Sunnyvale, Calif.; and EntreMed Inc., of Rockville, Md. Companies such as Adolor Corp., of Malvern, Pa.; Drug Abuse Sciences Inc., of Menlo Park, Calif., and Paris; and Rigel Pharmaceuticals Inc., of South San Francisco, have withdrawn their initial public offerings. (See BioWorld Today, March 23, 2000, p. 1; March 27, 2000, p. 3; March 31, 2000, p. 4; April 11, 2000, p. 2; and April 14, 2000, p. 1.)
One reason many companies give for withdrawing their offerings is that they have enough cash to carry them until the market gets better. Other companies may not have that leverage.
Some have moved forward with their public offerings, despite market volatility. Texas Biotechnology Corp., of Houston; Corixa Corp., of Seattle; and Aviron, of Mountain View, Calif., each raised more than $60 million, but considerably less than each originally intended to raise. Cubist Pharmaceuticals Inc., of Cambridge, Mass., and Ribozyme Pharmaceuticals Inc., of Boulder, Colo., raised $82.5 million and $56.7 million, respectively. Both financings also brought in millions less than expected. (See BioWorld Today, April 10, 2000, p. 1; and April 7, 2000, p. 3.)