In this article, Hakan Gadler reviews the IPO market for life science companies between January 1, 2003, and December 31, 2004. During this time period 53 companies went public accompanied by very different performance in the stock market. At the end of 2004, 29 companies were trading above their closing price of the first day of trading while 23 companies were trading below and one was unchanged. Among the best performing companies we find Syneron Medical, Pharmion, NitroMed, and New River Pharmaceuticals. Advancis Pharmaceutical, Corgentech, Acusphere, Xcyte Therapies, Myogen, Corcept Therapeutics, and Memory Pharmaceuticals were among the losers. For the entire time period the NASDAQ Biotechnology Index was up by 51 %, the NASDAQ itself by 57%, the S&P500 by 33%, and the Dow by 25 %. Companies with sales revenues, those in market segments of special interest to investors, or with high profile development programs, have generally fared better than others and two stellar performers have gained more than 200 % since their introduction. Finally, the IPO timeline is reviewed and several conclusions are drawn together with likely implications for future funding needs and resulting changes in investment activity.

Anyone with more than a casual inter­est in the life science industry views the IPO market as a proxy for investors’ interest in primarily development-stage and early-stage companies. Angelinvestors use it to decide whether they want to invest in startups; venture capital funds use it to decide whether this is an opportune time to raise another fund, its size, and which segments it should invest in; senior managers use it to support decisions about corporate strategy and development—make no mistake, however, the health and importance of the market extend well beyond those directly involved in it.

Everyone knows that angel investors and venture funds pulled back after the “bubble” burst but has the IPO market come back yet or is it still moribund?

Chart 2:

Life science IPOs between Jan 1, 2003 and Dec 31, 2004, ranked by stock market performance. All companies in this table were trading above their closing price of the first day of trading; Chart 3 contains companies trading below or unchanged.

First Trading Date	Company Name	Symbol	Closing Price First Trading Day	Closing Price 12/31/2004	Per Cent Price Change
8/9/2004	Syneron Medical Ltd.	ELOS	$9.20	$30.60	+233%
11/7/2003	Pharmion Corp.	PHRM	$13.00	$42.21	+225%
11/7/2003	NitroMed, Inc.	NTMD	$8.91	$26.65	+199%
8/9/2004	New River Pharmaceuticals, Inc.	NRPH	$7.36	$14.96	+103%
11/10/2004	CoTherix, Inc.	CTRX	$6.44	$11.92	+85%
3/2/2004	Kinetic Concepts, Inc.	ASE:KCI	$42.18	$76.30	+81%
6/1/2004	AngioDynamics, Inc.	ANGO	$13.60	$22.15	+63%
7/22/2004	NeuroMetrix, Inc.	NURO	$8.05	$11.75	+46%
10/7/2004	IntraLase Corp.	ILSE	$16.25	$23.48	+44%
1/30/2004	Eyetech Pharmaceuticals, Inc.	EYET	$32.40	$45.50	+40%
2/25/2004	Genitope Corp.	GTOP	$12.27	$17.04	+39%
7/22/2004	Idenix Pharmaceuticals, Inc.	IDIX	$13.45	$17.15	+28%
8/12/2004	Stereotaxis, Inc.	STXS	$7.82	$9.83	+26%
6/22/2004	Senomyx, Inc.	SNMX	$6.75	$8.28	+23%
7/26/2004	Auxilium Pharmaceuticals, Inc.	AUXL	$7.40	$8.85	+20%
10/28/2004	FoxHollow Technologies, Inc.	FOXH	$20.45	$24.59	+20%
4/30/2004	Barrier Therapeutics, Inc.	BTRX	$14.00	$16.60	+19%
11/18/2004	PRA International, Inc.	PRAI	$21.00	$24.78	+18%
5/27/2004	Critical Therapeutics, Inc.	CRTX	$7.10	$8.00	+13%
7/28/2004	MannKind Corp.	MNKD	$14.08	$15.75	+12%
6/4/2004	Inhibitex, Inc.	INHX	$7.22	$8.04	+11%
12/16/2004	Symmetry Medical, Inc.	NYS:SMA	$18.90	$21.05	+11%
3/17/2004	Tercica, Inc.	TRCA	$9.00	$10.00	+11%
6/16/2004	Metabasis Therapeutics, Inc.	MBRX	$6.66	$7.25	+9%
6/1/2004	Alnylam Pharmaceuticals, Inc.	ALNY	$7.00	$7.47	+7%
3/29/2004	Anadys Pharmaceuticals, Inc.	ANDS	$7.12	$7.49	+5%
2/3/2004	GTx, Inc.	GTXI	$12.90	$13.49	+5%
12/14/2004	Conor Medsystems, Inc.	CONR	$13.26	$13.85	+4%
5/27/2004	Acadia Pharmaceuticals, Inc.	ACAD	$6.70	$6.77	+1%
12/9/2004	CABG Medical, Inc.	CABG	$6.02	$5.99	+0%

Note: Unless otherwise noted, all introductions were done on the NASDAQ. ASE = American Stock Exchange; NYS = NYSE

Chart 3:

Life science IPOs between Jan 1, 2003 and Dec 31, 2004, ranked by stock market performance. All companies in this table were trading below their closing price of the first day of trading, or unchanged; Chart 2 contains companies trading above.

First Trading Date	Company Name	Symbol	Closing Price First Trading Day	Closing Price 12/31/2004	Per Cent Price Change
10/23/2003	Advancis Pharmaceutical Corp.	AVNC	$8.85	$3.82	-57%
2/13/2004	Corgentech, Inc.	CGTK	$19.25	$8.28	-57%
5/5/2004	Xcyte Therapies, Inc.	XCYT	$6.11	$2.76	-55%
10/9/2003	Acusphere, Inc.	ACUS	$13.10	$6.13	-53%
4/14/2004	Corcept Therapeutics, Inc.	CORT	$12.23	$6.25	-49%
2/25/2004	Myogen, Inc.	MYOG	$15.85	$8.07	-49%
4/6/2004	Memory Pharmaceuticals Corp.	MEMY	$9.95	$5.32	-47%
4/30/2004	Cytokinetics, Inc.	CYTK	$16.26	$10.25	-37%
6/10/2004	Digirad Corp.	DRAD	$11.77	$8.85	-25%
4/19/2004	Immunicon Corp.	IMMC	$8.50	$6.98	-18%
9/23/2004	Nephros, Inc.	ASE:NEP	$5.80	$4.74	-18%
2/19/2004	Dynavax Technologies Corp.	DVAX	$9.40	$8.00	-15%
5/26/2004	Animas Corp.	PUMP	$18.00	$15.63	-13%
3/31/2004	Cutera, Inc.	CUTR	$14.00	$12.50	-11%
10/30/2003	CancerVax Corp.	CNVX	$12.00	$10.85	-10%
6/22/2004	Momenta Pharmaceuticals, Inc.	MNTA	$7.81	$7.06	-10%
5/13/2004	NuVasive, Inc.	NUVA	$11.40	$10.25	-10%
4/1/2004	Santarus, Inc.	SNTS	$10.10	$9.04	-10%
10/20/2004	VNUS Medical Technologies, Inc.	VNUS	$15.04	$13.52	-10%
7/16/2004	Xenogen Corp.	XGEN	$7.50	$7.00	-7%
7/26/2004	Phase Forward, Inc.	PFWD	$8.32	$8.17	-2%
2/5/2004	Renovis, Inc.	RNVS	$14.50	$14.38	-1%
10/5/2004	Theravance, Inc.	THRX	$18.11	$17.90	-1%
12/9/2004	CABG Medical, Inc.	CABG	$6.02	$5.99	+0%

Note: Unless otherwise noted, all introductions were done on the NASDAQ. ASE = American Stock Exchange; NYS = NYSE

Stock Market Index Performance

Before we look at individual IPOs, it behooves us to look at the performance of the stock market at large. Chart 1 shows the relative performance of the three major market indices and the NASDAQ Biotechnology Index. The latter is weighted according to market capitalization and is comprised of companies classified as either biotechnology or pharmaceutical, and meeting certain eligibility criteria. During the entire time period, i.e., January 2003 through December 2004, the Biotechnology Index was up by 51 % while the NASDAQ itself was up by 57%, the S&P500 by 33 %, and the Dow by 25 %. Note, however, that this refers to their performance for the entire time period and that the best performance was during 2003.

Individual Introductions

Truth be told, how many of us remember howmany life-science companies did go public over the past two years? A review shows that, surprisingly, 53 companies did go public, all but a handful on the NASDAQ. In fact, only three companies chose another venue; Kinetic Concepts and Nephros the American Stock Exchange and Symmetry Medical the NYSE. Charts 2 and 3 list all companies, ranking them by their performance at the end of last year. I should not need to point out that the number of days each company had been listed by the end of the year varied. Of the 53 companies, 29 comanies were trading above the closing price of the first day of trading while 23 companies were trading below and one company was virtually unchanged.

Clearly there are some stellar performers— Syneron Medical, Pharmion, NitroMed, and New River Pharmaceuticals had each gained more than 100 % by the close of the year. Equallyclearly, investors in a few companies had troddenon hard times; Corgentech, Advancis Pharmaceutical, Xcyte Therapies, and Acusphere had each lost more than 50 % of their market capitalization by the end of 2004.

Separating The Stellar Performers

From The Laggards

What separates the stellar performers from the laggards? Simply put, financial performance does help but is not mandatory. Syneron Medical is a medical device company which had revenues of more than $57 million in 2004 with net income of more than $27 million. Pharmion, a biotech­nology company, had revenues of $130 million. NitroMed, on the other hand, has no products on the market but does have a high-profile clinical program developing a treatment for congestive heart failure specifically targeting African-Americans. The fourth top-performing company, New River Pharmaceuticals, also lacked market presence but is in the market segment du jour, specialty pharmaceuticals. Kinetic Concepts, up 81 % by the end of 2004, had revenues of almost $1 billion in 2004 on sales of wound care products and therapeutic surfaces. Of the under-performers, several had setbacksin their development programs which explained the loss of market capitalization.

The IPO Timeline

Reviewing the IPO timeline (Chart 4) we find that no introductions were effected until October 2003 and that only five companies went public in all of that year; Acusphere, Advancis Pharmaceutical, CancerVax, NitroMed, and Pharmion. Market reception was muted and there followed a hiatus which lasted until January 30, 2004, when Eyetech Pharmaceuticals hit the market with a bang — encouraging other companies to follow suit. Renovis, Corgentech, Dynavax, Genitope, Myogen, and Kinetic

Note: Each vertical line represents a single public offering.

Concepts generated additional interest among investors by closing above the offering price on the first day.

Conclusions

Several conclusions can be drawn. First, the IPO market for life-science companies has indeed been active beginning October 2003 with 48 companies going public in 2004 alone. Second, performance of individual stocks have been mixed with four companies gaining more than 100%, two more than 200%. Of the four companies, two were brought to the market in 2003, two in 2004. Third, investors have become somewhat more risk averse, generally valuing companies with sales revenues higher than those with product candidates in early clinical development. Fourth, valuations of life science companies have come back to earth after the years before the burst of the “bubble”, hopefully reflecting a more nuanced view of the prospects of individual companies.

I believe the IPO market will continue to be highly selective with speculative introductions received coolly by investors holding a long-term perspective. Public offerings will tend to be done later in a company’s development cycle resultingin an increased need for private financing of development-stage and early-stage companies; D and E financing rounds will become more common. Mergers of privately held companies will also become more common with the intent of building stronger companies with a greater chance of success, companies which can then be brought into the public markets.

Note: This article is a summary of a longer report with more extensive analysis of e.g., individual corporate financial performance, com­pany valuations, industry segment performance, underwriter participation, etc., of recent IPOs in the life science industry. The report will be pub­lished late March 2005.

Hakan Gadler, M.D., Ph.D., MBA, is the founder and president of Meddata, Inc., a consulting firm advising primarily senior management of life-science companies on strategy, corporate development, and business development opportunities. He particularly enjoys being able to bring a medical/clinical, a research, and a business/marketing/investor perspec­tive to the positioning and development of various promising life science companies. Hakan can be con­tacted at hgadler@meddatainc.com.