By Jennifer Van Brunt
Investment banking firm Hambrecht & Quist LLC (H&Q) continues to play a vital role in the health of the biotechnology sector. Year after year, H&Q has helped more biotech companies raise money in the public markets than any of the other firms that specialize in underwriting biotech stock offerings.
When William Hambrecht joined forces with the late George Quist in 1968, the idea was to create a San Francisco-based investment bank that could offer its services to the then-small, rapidly growing companies in Silicon Valley. In particular, Hambrecht, who retired Jan. 1, 1998, from his position as chairman of the company, was instrumental in bringing public such early technology and health care companies as Apple Computer Inc. and Genentech Inc. (NYSE:GNE). To this day, H&Q maintains its focus on investing in technology, health care and biotechnology companies.
In fact, that focus is one of the main reasons New York-based Merrill Lynch & Co., the biggest brokerage company in the U.S., was reported to be interested in buying H&Q for more than $1 billion. The rumor mill surrounding this possible acquisition has died down since the turn of the year, but if this deal comes to pass, it will cap the flurry of activity that saw most of biotech's other major underwriters — Robertson, Stephens & Co. LLC, Montgomery Securities, Oppenheimer & Co. Inc., Dillon, Read & Co. Inc., Morgan Stanley & Co. Inc. and Alex. Brown & Sons Inc. — get acquired by big banks. Perhaps as a consequence of those acquisitions and the inevitable reshuffling that has followed, most of those underwriters played a lesser role in biotech's public offerings in 1997 than they have in the past.
In 1997, as in previous years, H&Q dominated the offerings calendar, participating in more than one-third of all public stock offerings — initial, follow-on and institutional offerings of registered stock (a variation of a "plain vanilla" follow-on offering, in which registered shares are sold solely to institutions). If anything, H&Q is forging an even firmer bond with the biotech sector than it has in recent years. In 1996, for instance, H&Q took a role — either as lead underwriter or as comanager — in about one-fourth of all public offerings.
But whereas 1996 was an especially hot year for biotech public offerings — with 50 initial public offerings (IPOs) garnering $1.61 billion in gross proceeds, 66 follow-on offerings bringing in more than $2.88 billion gross and 14 institutional offerings of registered stock grabbing an additional $226 million — 1997's take was much more modest. In the year just past, there were 24 IPOs, which gleaned a total of $781 million, and 35 follow-on offerings, which reaped an additional $1.58 billion in gross proceeds. As well, seven institutional offerings of registered stock brought in another $122 million.
Together, H&Q-backed offerings in 1997 grossed about $843 million; the firm acted as lead manager on 11 out of those 20 offerings, and those 11 reaped more than $400 million gross for the companies offering the stock. And, of course, they garnered money for H&Q as well, even though H&Q reported that its investment banking revenue declined by 24 percent ($7.2 million) in the quarter ended Dec. 31, 1997, as compared to the year-earlier period.
Other underwriters that made a strong showing in biotech's 1997 public offerings include BancAmerica Robertson, Stephens — which acted as lead or comanager on 11 public offerings that grossed a total of $580 million — and Lehman Brothers — which acted as lead or comanager on eight public offerings that grossed $408 million.
(Details and data on initial public offerings only are included in the charts that follow. Details on all public offerings [which include follow-on offerings and offerings of registered stock] are not included here, but will be published in BioWorld's Biotechnology State Of The Industry Report 1998.)
Looking At IPOs
In the IPO arena, H&Q took the lead role in three IPOs — Coulter Pharmaceutical Inc. (NASDAQ:CLTR), Epix Medical Inc. (NASDAQ:EPIX) and LeukoSite Inc. (NASDAQ:LKST) — and comanaged another four initial offerings — Aurora Biosciences Inc. (NASDAQ:ABSC), Bioreliance Corp. (NASDAQ:BREL), Megabios Corp. (NASDAQ:MBIO) and Gene Logic Inc. (NASDAQ:GLGC). Together, those IPOs harvested $207 million.
But importantly, the stocks also did extremely well in the after-market, averaging a gain of 49 percent. That is, these stocks appreciated by an average of 49 percent from the offering price per share to the closing price on Dec. 31, 1997. Of the seven IPOs, Gene Logic was the only one that had no change in stock price by the end of the year; all of the others increased in value, from 19 percent (for Megabios) to 86 percent (for Epix Medical). And two of the IPOs underwritten by H&Q — Epix Medical and Coulter Pharmaceutical — went back to the public markets a second time in 1997 (a phenomenon known as "double dipping"), raising more money in follow-on offerings.
That's not to say that H&Q was the only underwriter whose stocks performed well in the after-market. But it was Epix Medical's IPO — comanaged by Wessels, Arnold and Henderson — that topped the list of after-market achievers in 1997.
On the other hand, NationsBanc Montgomery Securities — which in its former incarnation as Montgomery Securities ruled the IPO arena in 1996 (see BioWorld Financial Watch, Feb. 3, 1997, for details) — ranked fifth among all IPO underwriters in 1997 in terms of gross proceeds, which totaled close to $103 million. However, although the volume of its underwriting was down, the quality was not. These stocks, too, performed admirably in the after-market, gaining an average of 32 percent. NationsBanc Montgomery Securities took the lead in only one IPO in 1997 — Megabios — and the stock appreciated by 19 percent by the end of the year. NationsBanc Montgomery Securities also comanaged another two IPOs — for Cell Therapeutics Inc. (NASDAQ:CTIC) and Trimeris Inc. (TRMS). Cell Therapeutics gained 70 percent in price by Dec. 31 — and was the third IPO to double-dip in 1997. Trimeris, too, appreciated in value, ending the year up 8 percent from its IPO price.
CIBC Oppenheimer Corp., which in its former life as Oppenheimer & Co. Inc. was another long-time biotech supporter, only underwrote one IPO in 1997, but that stock — Progenics Pharmaceuticals Inc. (NASDAQ:PGNX) — leaped 75 percent in value by the end of the year.
Even though 1997 was not a remarkable year for biotech public offerings, it was certainly a decent one. Despite the cloud of fear and uncertainty that gathered over Wall Street in the fall regarding the Asian economic crisis, the biotech stocks did not bottom out. And the IPOs certainly performed well, appreciating an average of 9 percent by the last trading day of 1997. (In 1996, however, the IPOs did even better in the after-market, with an average gain of 17 percent.)
In fact, of the 24 biotech and biotech-related companies that made their public debuts in 1997, 12 ended the year at a higher price than the IPO price and two closed dead even. The others — which include one IPO on the London Stock Exchange (Cambridge Antibody Technology Group plc; LSE:CAT) and one international offering (Biora AB; NASDAQ:BIORY) — sank below their IPO prices. These ranged from a loss of 8 percent (SIGA Pharmaceuticals Inc.; NASDAQ:SGPH) to a drop of 56 percent (Progenitor Inc.; NASDAQ:PGEN).