Reuters
IPO VIEW - Black cloud hovers over pharmaceutical offerings
Sunday March 28, 11:46 am ET
By Steve James

NEW YORK, March 28 (Reuters) - It looks like bad news on top of bad news in the market for initial public offerings this week, as the only firms on tap for the market are in the pharmaceutical/biomedical sector, which currently has a black cloud hovering over it.

Last week, two IPOs in the sector were delayed, with underwriters dramatically reducing the asking stock price of one of them. Meanwhile, other drug company IPOs this month have turned in less-than-stellar after-market performances.

Analysts said the market's downward move had hit the recent batch of IPO's, forcing some price adjustments. Also, investors may be overwhelmed by a glut of biotech and drug IPOs.

"As they used to say in the Klondike, the vein seems to be played out," said John Fitzgibbon, who writes about IPOs for redherring.com.

On the launch pad this week and hoping to buck that trend are Santarus Inc., a pharmaceutical firm specializing in treatments for gastrointestinal diseases, and Cutera Inc., which makes laser products for aesthetic treatments.

Fitzgibbon said there was a general weakness in the health sector right now as it goes through a consolidation phase. "Deals in this area have to be considered risky investments. They (IPOs) are predicated on hope, rather than reality."

Francis Gaskins, of online newsletter IPO Desktop, said that underwriters may be overestimating the market's interest in such offerings, resulting in overpricing.

"Underwriters are trying to price a shade higher than the market wants," he said. "This is a wake-up call."

Underwriters are serving companies rather than investors, and instead of pricing lower in order to get a healthy 10-15 percent stock price rise on the first day's trading, recent IPOs have been forced to lower the asking price, said Gaskins.

"Underwriters are getting greedy because it is a very competitive market. Companies are getting bad advice and should go with the underwriter who can guarantee a 10-15 percent first-day pop rather than offering the absolute lowest fees."

He said despite a "market correction" in the last three weeks, price ranges had already been set and were not adjusted to reality.

Caught in that trap was Anadys Pharmaceuticals (Nasdaq:ANDS - News), which originally planned to offer 6.25 million shares at an estimated price of $11 to $13 per share.

But underwriters, led by SG Cowen Securities, were forced to chop the issue price to $7 in order to attract demand. The shares were sold late Thursday, and rose about 1 percent to $7.06 per share on their debut on the Nasdaq stock market on Friday.

Memory Pharmaceuticals was also delayed last week by underwriters, led by UBS Securities.

The Montvale, New Jersey-based company estimated the IPO of 5 million shares would sell for $13 to $15 per share. It has applied for a Nasdaq listing under the ticker "MEMY" (Nasdaq:MEMY - News), and is now expected to be sold sometime this week.

Then there is Xcyte Therapies (NasdaqNM:XCYT - News), whose stock slumped in its market debut on March 16 after the IPO, which had already been delayed by a week, was priced at $8 per share -- significantly lower than the estimated range of $13 to $15 per share.

San Diego-based Santarus is offering about 7.1 million shares at a price of $11-$13 per share. The underwriters are led by SG Cowen and UBS. It has applied for a Nasdaq listing under the ticker symbol "SNTS" (Other OTC:SNTS.PK - News).

Brasbane, California-based Cutera is offering about 3.6 million shares in the range $14-$16 per share.

Cutera, formerly called Altus Medical, markets lasers and other light-based products under the brand, "CoolGlide," used by dermatologists, plastic surgeons, gynecologists and other physicians as alternative procedures to using abrasive agents.

Piper Jaffray, SG Cowen and RBC Capital Markets are to underwrite the offering, and have an option to purchase an additional 465,000 shares.

The company has proposed listing on the Nasdaq under the symbol "CUTR" (Nasdaq:CUTR - News).