WASHINGTON Vivus Inc., a Menlo Park, Calif.-basedcompany developing a treatment for impotence, filed on Feb.24 with the Securities and Exchange Commission for a silentinitial public offering (IPO) of 1.8 million shares pricedbetween $13 and $15 per share.Underwriters for the offering are Montgomery Securities andInvemed Associates Inc. If completed, the IPO will addbetween $23 million and $27 million to Vivus' coffers andgive the 3-year-old company a market capitalization ofbetween $143 and $165 million.The company's lead product is a non-invasive, single-usedisposable plastic applicator that delivers the generic drugalprostadil, a synthetic version of a naturally occurringvasoactive prostaglandin, into the urethra. According to theIPO prospectus, the Vivus system, called Medicated UrethralSystem for Erection-alprostadil (MUSE-alprostadil), has beentested in more than 800 men at more than 25 study sites in theU.S.Because alprostadil is approved by the FDA for anotherclinical indication, Vivus has progressed into clinical trialswith a minimum of preclinical studies. The company filed aninvestigational new drug (IND) application with FDA in July1992 for MUSE-alprostadil and has completed one PhaseII/III dose-ranging study in 245 patients. The IPO prospectusstates that results from the trial "indicate the preliminarysafety and efficacy" of MUSE-alprostadil.Patients from the Phase II/III study have begun enrolling in asix-month pivotal Phase III maintenance study. AdditionalPhase III studies are planned or under way, including a qualityof life study which has enrolled most of a planned 600-patientstudy and two pivotal 350-patient "confirmatory studies"which were slated to begin in early 1994. The primaryefficacy endpoint of the confirmatory studies is the ability ofthe patient and his spouse to engage in sexual intercourse.If these studies demonstrate that MUSE-alprostadil isefficacious, Vivus plans to file a new drug application (NDA)with FDA.Spolana Chemical Works AS in Neratovice, Czech Republic,is the company's sole source of alprostadil. The IPOprospectus states that the drug is "extremely difficult tomanufacture" and is available from alternate producers only atprices prohibitive for commercial use.Approximately 16 million men in the U.S. more than 10percent of all adult males suffer from some degree oferectile dysfunction. Current standard therapies to treat theproblem include needle injection of pharmacologic agents intothe penis, vacuum constriction devices, surgical implants andoral medications. The Vivus IPO prospectus claims thatMUSE-alprostadil can be easily administered with minimalinstruction and therefore has the potential to increase thenumber of men who will seek and receive medical treatmentfor erectile disorders.According to the prospectus, Vivus has lost a total of $11.5million since its inception, $6.5 million in 1993, $3.3 millionin 1992 and $500,000 in 1991.Vivus has raised a total of $34 million in four private roundsof financing since 1991. The most recent financing, completedin July 1993, raised $25 million with the sale ofapproximately 3.3 million shares at $7.50 per share (all shareamounts and prices adjusted for a Feb. 23, 1994 1-for-3reverse common stock split).Three earlier rounds sold a total of 3.5 million shares at pricesranging between $1.65 and $4.95 per share and founders ofthe company received roughly 1.9 million shares of "pennystock" in the seed round completed in mid-1991.The largest shareholders of Vivus stock are InstitutionalVenture Partners, Domain Associates and the Mayfield Fund,which own 1.4 million shares apiece. Vivus' chairman of theboard and chief scientific officer, Virgil Place, owns 1.3million shares.According to Mark Edwards of the financial consulting firmRecombinant Capital in San Francisco, if the Vivus offeringcompletes in the range planned, it could be a signal that themarket is ready for richer IPO deals than it has seen recently.With a post-IPO valuation between $143 and $165 million,Vivus would join class of '94 IPOs NeXagen Inc. of Boulder,Colo., and Igen Inc. of Rockville, Md., in breaking the $100million barrier for post-IPO market capitalization. The fourother IPOs that have completed since January have had anaverage post-IPO valuation of $54 million.Edwards said that still-private companies such as RibozymePharmaceuticals of Boulder, Colo., Tularik Inc. of South SanFrancisco, Calif., Houghten Pharmaceuticals of San Diego,Sibia Inc. of La Jolla, Calif., and Sugen Inc. of Redwood City,Calif., "will be watching the Vivus deal very, very closely."Many of these companies have raised money privately at pricepoints higher than some of last year's IPOs. Including Vivus,there are at least nine biotechnology IPOs that have filed withthe SEC and are waiting to debut on the public markets.Analyst Gregory Brown of Vector Securities International Inc.in Deerfield, Ill., said that the Vivus deal, if completed, mayprove the exception to the rule in an IPO market that is stillwary of new biotechnology issues. He said that the productand the problem it attempts to address are easily understoodand thus more attractive to retail investors, whose eyes oftenglaze over when they hear about complicated scientificconcepts in IPO road shows."This should not be taken as a signal that valuations areheading north," said Brown.032194Vivus

-- Lisa Piercey Washington Editor

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