Aftermarket Turns Up, Momentum Starts To Build –

After five months of declines, the VCJ IPO Aftermarket finally broke out of its slump, spurred on by the same sector that caused its decline – biotechnology. As a group, the nine biotech stocks on our list were up 22% in January, helped along by newly public EyeTech Pharmaceuticals, which posted the eighth-best performance on our list. A month earlier the performance of the biotech group (sans EyeTech) was completely flat.

Will the turnaround in the Aftermarket be sustained? The answer looked like a resounding “yes” in mid-ebruary, as VCJ went to press. Two new issues made strong debuts – wireless chipmaker Atheros Communications (Nasdaq: ATHR) and gene therapy company Corgentech (Nasdaq: CGTK) on Feb. 12. The eight venture firms behind those companies collectively owned stock valued at more than $530 million when the markets closed on their first day of trading.

“The IPO market is open for business,” says Jeff Hirshkorn, co-founder and senior IPO analyst for Current Offerings of New York City. “If you’ve got a company with a viable product, I’ve got a buyer.”

You can’t argue with the numbers. As of Feb. 12, 20 companies had gone public, raising $4.6 billion. That compares to just a single IPO that raised $9 million during the same period a year earlier, Hirshkorn says.

And the aftermarket performance has been strong. Of the 20 new issues, 14 were trading up, three were down and only one was flat. The average gain was 18 percent. Venture-backed IPOs, in particular, were on fire. The five that made it out as of Feb. 12 rose by an average of 26% from their offering prices.

Corgentech priced at $16 and closed at $21.40, up 34 percent. Atheros priced at $14 and closed at $17.60, up 26 percent. And EyeTech Pharmaceuticals, which went public on Jan. 30 at $21 per share, closed at $30 on Feb. 12, up 43 percent.

While EyeTech and Corgentech represent a comeback for biotech stocks, all eyes were on Atheros. It’s IPO was significant for two reasons: One, it was the first fabless semiconductor company to go public since Sigmatel went public last September. Two, it is one of the leading producers of Wi-Fi chips in a market sector jammed with at least 12 other wireless startups with venture backing.

Atheros is typical of most venture-backed wireless companies. It raised lots of capital and was given a generous valuation, maybe too generous. All told, the 6-year-old company raised $104.3 million in three rounds. In its last round – a $66.69 million Series C done in April 2001 – VCs gave the company a pre-money valuation of $230 million.

The three largest shareholders in Atheros are Foundation Capital (5.9 million shares), August Capital (5.09 million) and New Enterprise Associates (3.59 million shares). The three venture firms’ stock was collectively valued at $257 million after the IPO.