By Jennifer Van Brunt


The initial public offerings (IPO) market has been off to the slowest start in a decade. Through the first three weeks of January 1998, only about five new issues had made their debut on Wall Street -- and not a one of them was a biotechnology company. Moreover, those five IPOs raised only $77 million, according to Newark, N.J.-based Securities Data Co., the lowest amount for the first month of the year since 1988. But now the market seems to have finally begun to pick up some steam; 13 new issues were priced in the last week of January, reaping more than $900 million in gross proceeds, and the offerings calendar across all industries has started getting crowded once again. There were even three biotech IPOs scheduled to be priced last week -- for Ophidian Pharmaceuticals Inc., Scriptgen Pharmaceuticals Inc. and Vysis Inc. Two of these companies have been in registration since last fall, and Ophidian Pharmaceuticals first filed its registration statement with the Securities and Exchange Commission in early August.

Still, IPOs in the biotech sector have been off to an even slower start than the general market, especially given the fact that January has traditionally been a very good month for biotech companies to come public. In 1992, for instance -- when BioWorld Financial Watch first started tracking these deals -- there were 11 biotech IPOs in January alone (and 45 total for the year). In January 1993 there were 5 IPOs; in 1994 there were two; in 1995 there were three; and in 1996 there were five biotech IPOs in the first month of the year. Even in 1997, two companies came public in January -- Coulter Pharmaceutical Inc. (NASDAQ:CLTR) and Epix Medical Inc. (NASDAQ:EPIX) -- and each of those was able to go back to the market again in the fall and raise even more cash in a follow-on stock offering. But in January 1998, not one biotech company made its public debut -- even though there are 11 companies still in registration.

Still, January was not entirely bleak, even in the public markets. Two biotech companies did manage to raise money on Wall Street: Both CV Therapeutics Inc. (NASDAQ:CVTX) and Pharmacyclics Inc. (NASDAQ:PCYC) completed successful follow-on offerings, raising almost $63 million between them. Moreover, both companies turned the offerings around in a month or less. In fact, Palo Alto, Calif.-based CV Therapeutics' offering was in such high demand that it not only went from start to finish in slightly more that two weeks, but the firm, which specializes in small-molecule drugs for treating cardiovascular diseases, sold 0.6 million more shares than it had anticipated. And the underwriters of Pharmacyclics' offering sold all the overallotment shares almost immediately; the company, located in Sunnyvale, Calif., is developing energy-potentiating drugs (based on small organic molecules known as texaphyrins) to improve radiation and chemotherapy treatments for cancer.

But the bulk of the cash flowing into public biotech companies in 1998 so far has come not from the public markets but rather from alternate financing vehicles, especially private placements of one sort or another. These alternate financings raised almost $171 million in January, contributing heavily to biotech's total take from all financing sources in the first month of the year.

Novavax Inc. (AMEX:NOX), of Columbia, Md., Oncor Inc. (AMEX:ONC), of Gaithersburg, Md., and Cambridge, Mass.-based OraVax Inc. (NASDAQ:ORVX) all raised cash by selling convertible preferred stock. And MedImmune Inc. (NASDAQ:MEDI), also located in Gaithersburg, raised $66 million by selling shares of common stock to three of its biggest investors -- BB Biotech, of Schaffhausen, Switzerland, Investor AB, of Stockholm, Sweden, and INVESCO Funds Group, of Denver. Through its purchase of 1 million shares, BB Biotech has become MedImmune's second-largest stockholder.

And by the end of the first week in February, it was obvious that even more companies are seeking alternate routes to cash. New Brunswick, N.J.-based Interferon Sciences Inc. (NASDAQ:IFSC) garnered $7.5 million by selling convertible preferred stock to an institutional investor and Pharmos Corp. (NASDAQ:PARS), now located in Iselin, N.J., raised $5 million in much the same way. Moreover, Redwood City, Calif.-based Cygnus Inc. (NASDAQ:CYGN) completed two financings simultaneously, reaping $43 million from a debt offering of subordinated convertible notes due 2005 and an additional $13.8 million from a direct public offering of common stock. As well, Sepracor Inc. (NASDAQ:SEPR) raised a cool $165 million through an offering of convertible subordinated debentures due 2005. The Marlborough, Mass., company, which is focused on developing single-isomer versions of existing drugs, increased the size of the offering from $130 million to meet demand.

So while it's obvious from the nature of these specific financings that investors place a high value on particular biotech and biotech-related stocks, it's not at all clear when one observes the price performance of the group as a whole. The average percent change in price of the 304 stocks that are included in BioWorld Financial Watch's universe was a gain of only 1.13 percent over the month of January. But the Nasdaq Biotech Index, which monitors 100 biotech stocks, actually lost a small piece of ground -- about 0.3 percent -- between Dec. 31, 1997, and Jan. 30, 1998. (See the graphs on p. 10 for details). Yet individual stocks have exhibited dramatic changes during that same time period. For instance, Cor Therapeutics Inc. (NASDAQ:CORR), of South San Francisco, lost half its market value in one day in response to an FDA advisory committee's limited recommendation for approval of Integrilin, an anti-clotting agent that targets the same biological receptor as Centocor Inc.'s successful drug ReoPro. Simultaneously, investors grabbed up Malvern, Pa.-based Centocor (NASDAQ:CNTO) shares, spiking the price by 14.5 percent.

Even with such a precipitous move as Cor's 50 percent drop, the biotech group as a whole weathered the event on a relatively even keel. Biotech analysts and market watchers have pointed to this "uncoupling" phenomenon -- in which the stocks react on their own merits and not necessarily as part of a large group -- as one of the true benchmarks of 1997 for the biotechnology sector. If so, this should become all the more apparent in 1998 -- especially given the fact that many biotech companies will be able to report actual earnings for the first time this year, giving investors a traditional means of measuring performance.