New Biotech Issues Drag Down the Aftermarket –

Venture-backed IPOs continue to slip out the door, but Wall Street is taking an increasingly negative attitude toward new companies that hold lots of promise but aren’t yet profitable.

For the third straight month the VCJ IPO Aftermarket posted an overall decline. That’s in stark contrast to five straight months of gains from February to June. Blame biotech, the same sector that VCs are now falling over themselves to invest in (see story, page 11).

Overall, the IPO Aftermarket was up 45% on Oct. 31. But when you take out the five latest issues – Acusphere, Advancis, CancerVax, Genitope and Myogen – the rest of the group posts a 57% gain. By themselves, the five biotech clunkers (all operating in the red) gained just 1.8% from their average offering price to their average closing price on Oct. 31. Worse, their stock prices continued to slide in November, with the group posting a negative 14% return as of Nov. 13.

Wall Street continued to pound new biotech issues. Pharmion (Nasdaq: PHRM) went public at $14 per share on Nov. 6 and closed at $12.68 on Nov. 13, while Nitromed (Nasdaq: NTMD) priced at $11 a share on Nov. 6 and closed at $8.90 on Nov. 13.

The one bright spot in VC-backed IPOs is Tessera Technologies, funded by Apax Partners and AB Concord Partners. The company, which climbed out of the red in 2002 and is on track to beat its 02 performance, went public for $13 per share on Nov. 12 and closed at $18.59 the following day. In addition to being profitable, San Jose, Calif.-based Tessera targets the semiconductor market, which is staging a comeback. It licenses its packaging to chipmakers so that they can produce smaller and faster chips with more features.

It’s too late for Sprout Group to rethink its decision to abandon IT and focus exclusively on health care-related companies. But the near-term reaction of the public markets should at least give it pause.

-Lawrence Aragon, Editor