Investors embrace higher volume of biotech offerings.

The market for new biotechnology shares has been up and down, but more firms are waiting in the wings for their public debuts.

As of March 30, eight biotechnology companies--more than in all of 2003--had public offerings this year, totaling proceeds of $602.7 million.

Biotech IPOs had average returns of 5.3 percent as of March 30, said Melanie Hase, an analyst with Renaissance Capital, a Greenwich, Conn.-based investment firm specializing in IPOs.

"The demand is still there, but investors are extremely picky when it comes to selecting biotech IPOs," Hase said. Investors like the idea of companies with drugs in late-stage clinical trials, solid clinical data, a strong pharmaceutical partner to back them and a foreseeable time frame to file for drug approval.

This year's big winner: Eyetech Pharmaceuticals Inc. The New York-based company has a promising drug in Phase III trials and landed a big partnership with Pfizer Inc., the world's largest drug maker. The firm also had good timing.

Since Eyetech went public on Jan. 30 at $21 a share--better than the expected $18 to $20--its stock has soared 55 percent. The pricing came just after the Nasdaq reached its 52-week high. Since then the markets have cooled.

"In January, valuations were really high for the public markets," said Patrick Schnegelsberg-Pettersson, director of investment banking at Rodman & Renshaw LLC in New York. The subsequent mixed economic news put pressure on the equity markets and hence the IPOs.

In recent weeks, several companies had to price below their expected range and saw their shares drop under their issue price. San Diego-based Santarus Inc., which went public March 31, priced at $9, down from the expected $11 to $13.

The specialty pharmaceutical company has completed Phase III trials and applied to the Food and Drug Administration to approve its gastrointestinal drug Rapinex.

There were, however, also several deals being pushed through that some analysts said might not have been mature enough.

San Diego-based Anadys Pharmaceuticals Inc., which went public on March 25 after being held over, was priced at $7, down from its original range of $11 to $13. The firm's most advanced product, a hepatitis drug, is in Phase I trials. The FDA requires three phases of testing, which takes years.

Hase said in this case investors were sending a clear message: "They are saying we are taking on the additional risk, but we want to be compensated with a discount."

Schnegelsberg-Pettersson suggested that younger companies might be better off waiting for improved market conditions. "There are other means whereby a highly promising company can raise free capital to continue operations. Unless there is a more elaborate strategic thought that leads to a merger, there is no fundamental reason to take a company public," he said.

Hase said biotech investors invest for the long-term, because they understand drug development is risky and takes time.

MARION WEBB

San Diego Business Journal