Jazz IPO Fails to Generate Buzz

IN VIVO Blog prefers the strong stuff

Yikes.

Jazz Pharmaceuticals IPO price fell from an expected $24-26 to a hoped-for $20-21 to an actual $18 per share, raising only $108 million when it had banked on at least $150 million. This morning the stock traded down in its first session, losing about 5% as of noon ET.

We've addressed the vaguaries of IPO pricing in the past, here and, more recently and more optmistically, here. Jazz would have been one of our bets to succeed in the IPO market where others had failed, given its larger-than-average size and impressive pedigree.

But it wasn't all rosy. The NYT played up the risks associated with Jazz's Xyrem (a.k.a. GHB) in a piece the other day and noted the biotech was running out of dough. $108 million should give the company an extra year or so of cash (it burnt through $82 million last year) but falls plenty short of its backers' hopes. With a market cap shy of $500 million, it's unlikely backers like KKR (which owned nearly half the firm, pre-IPO, after its big participation in Jazz's $250 million Series B) feel they are getting enough bang for their buck, at least for now.

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Is it Time to Buy Amgen?

Maybe it’s time to buy Amgen. Yeah, you heard right.

Many of Amgen’s shareholders—including the CFO—have scuttled over the past few months, frightened away by the seemingly endless series of blows to hit the US biotech. That’s why the stock’s at a year-low and down 30% since the start of 2007.

Over the last week, a dozen or so further percentage points were knocked off by May 10th's FDA advisory committee meeting and by the CMS’s proposal on Monday to curb Medicare payments for Aranesp in certain cancer patients.

Can it get any worse? Apparently some of Wall Street’s analysts think so. Several cut their ratings on the stock last week, according to the Wall Street Journal’s Health Blog, including long-time bulls Lazard Capital Markets.

Now, we’re not analysts. (Nor are we shareholders, nor are we share-tipping.) But, let’s face it, analysts have been known to be wrong. Dare we suggest there are whiffs of panic? Perhaps hints of lemming behavior—the slope on this once-loved stock has reversed now for, what, six months, so game’s up?

Now granted, there may be just one or two more potential hitches—the most significant being FDA’s planned fall meeting to discuss the use of EPO drugs in kidney failure. Nephrology makes up a far larger chunk of Amgen’s $6.6 billion EPO sales than oncology, and any ruling here could hit both Epogen and Aranesp.

But Amgen’s already trading at an almost 15% discount to its biopharma peers based on estimated 2007 EPS. And, as they say, in every cloud is a silver lining.

For one thing, any bad for EPO drugs is bad for Amgen’s competitors, too—including Roche's Mircera. Look out on May 20th , the Mircera PDUFA date: a bumpy ride for Roche may help Amgen.

And on a more positive note, Phase III pipeline drug denosumab may be the best in the entire biopharma sector pipeline, if you believe Mark Schoenebaum at Bear Stearns. “It could be a $5 billion drug, Amgen’s biggest ever,” he told IN VIVO last month. The first data is due by year-end. And if you believe Amgen, there’s also a wicked Phase II pipeline tucked away somewhere—if you haven’t heard about it yet, you will soon.

If investors don't start buying Amgen again soon, maybe, just maybe, the stock will hit a low that an acquisition-mad Big Pharma can't resist. The idea is around, if improbable.

But then, Merck & Co. came back, didn’t it?

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Aim Low?

Another IPO, another bad haircut.

Yesterday Pharmasset, a virology-focused biotech with several clinical assets and a strategic alliance with Roche, priced five million shares on the Nasdaq at $9 apiece, well below its original $12-14 price range, and one million fewer shares than it had originally hoped to sell.

That the biotech IPO market is pretty miserable and has VCs running toward the steely embrace of Pfizer et al. is hardly news. But what grabs us is how just about every company--and just about every underwriter--manages to be so poor at predicting its value on the open market.

So few biotechs price within their stated IPO ranges that it's practically comical. Even the Pharmassets of the industry (companies that supposedly tick all the boxes for public investors: strategic alliance? check. proof-of-concept data? check.) get a poor reception, and pricing above the range is almost unheard of (the exception to that rule being Affymax, last year).

One factor may be the scarcity of significant biotech IPO investors, and the relative pricing power of the handful of specialists, a phenomenon we're looking at in the next issue of START-UP.

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