Ames Gross, John Minot

January 1, 2008

4 Min Read
Medtech IPOs Maintain Pace in 2007

Perhaps 2007 wasn't quite a banner year for initial public offerings (IPOs) by medical technology companies. But after the dreadful start that the public markets have had in 2008, companies on the hunt for public funding may soon be looking at last year as ‘the good old days.'

 

 

Table I
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According to Renaissance Capital (Greenwich, CT), 13 medical device firms made the transition from privately held to publicly traded companies during 2007, compared to 11 in 2006 (see Table I). The 2007 deals generated $1.27 billion, an increase of 52% over the $832 million IPO yield of the prior year. Valuation of the 2007 medtech IPOs ranged from $21 million to $288 million, with a group average of $97.7 million. At press time, eight of the medtech IPOs had a stock price higher than on their date of issue, while five stocks posted losses.

Across all industries, 234 companies issued IPOs in 2007. That figure reportedly represents the greatest number of IPOs in a single year since 2000 and an 18% increase over the 2006 figure of 198. Proceeds from IPOs in 2007 were $54 billion, a 26% increase over the $43 billion generated in 2006. The average deal in 2007 garnered $229 million in contrast to $217 million the prior year. However, IPOs in 2007 failed to match the postlaunch performance of 2006 offerings, which produced increased value of 26%—twice the 13% returns generated by IPOs in 2007.

 

 

Table II
(click image to enlarge)

Taken as a group, the 2007 medical device IPOs have so far outperformed those of the general market. From their date of issue through early January 2008, the 13 medtech IPOs yielded an average return of 15.9%. The three top performers were BioMimetic Therapeutics Inc. (Franklin, TN), a developer of bioactive drug-device combination products for musculoskeletal injuries; Masimo Corp. (Irvine, CA), a manufacturer of pulse oximetry equipment; and Insulet Corp. (Bedford, MA), a maker of insulin management devices. As of January 11, their stock prices had increased by 117.0%, 100.3%, and 61.5%, respectively (see Table II).

The three poorest performing IPOs in the medtech group were Xtent Inc, (Menlo Park, CA), a manufacturer of drug-eluting coronary stents; Oculus Innovative Sciences Inc. (Petaluma, CA), a manufacturer of wound-care products; and Response Genetics Inc. (Los Angeles), a developer of diagnostic tests for cancer recurrence and response to chemotherapy. These three IPOs reported stock price declines of 47.8%, 41.9%, and 30%, respectively.

Ten additional medtech companies filed IPOs during 2007 but have not yet begun trading. They are Alma Lasers Ltd. (Caesarea, Israel), BG Medicine Inc. (Waltham, MA), Broncus Technologies Inc. (Mountain View, CA), Concentric Medical Inc. (Mountain View, CA), Emphasys Medical Inc. (Redwood City, CA), Eyeonics Inc. (Aliso Viejo, CA), Mako Surgical Inc. (Fort Lauderdale, FL), Transmedics Inc (Andover, MA), Transoma Medical Inc. (St. Paul, MN), and XDx Inc. (Brisbane, CA).

Several of these 2007 inactive medtech IPO filings were announced months ago. Considering the current turmoil in the worldwide economy, companies that have announced their intention to go public but haven't yet launched their IPOs may join a growing group of companies that are already circling the stock exchange trading floors in a holding pattern. Meanwhile, five other medtech companies withdrew their IPO filings during 2007, including Amedica Corp. (Salt Lake City), Devax Inc. (Lake Forest, CA), Eyetel Imaging Inc. (Columbia, MD), Precision Therapeutics Inc. (Pittsburgh), and Reliant Technologies Inc. (Mountain View, CA).

Once the global economy settles down and begins its inevitable march toward recovery, the IPO will almost certainly regain its position as a viable vehicle for raising medtech capital. Nevertheless, many analysts believe that the IPO no longer has the cachet that it once enjoyed. In the era of Sarbanes-Oxley, many medical product entrepreneurs—as well as those in other technology-intensive sectors—no longer see going public as emblematic of a successful company—or, for that matter, a prime exit strategy.

© 2008 Canon Communications LLC

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