BioWorld Insight Contributing Writer

Last week, Trius Therapeutics Inc. became the latest biotech company to slash prices on its initial public offering, as life sciences firms in a risk-averse investment climate continue to downsize expectations, in some cases settling for as little of half of their originally sought targets.

Institutional funds are turning toward already-public biotechs that need money and deserve it, raising the bar for IPOs, where a fund's capacity to invest is more limited, noted analyst Neil Riley of Piper Jaffray and Co., though he predicted the coming months would bring a new IPO window.

As if to echo Riley, NuPathe Inc., of Conshohocken, Pa., followed Trius and priced its offering of 5 million shares late last week. That firm, which anticipates using proceeds for commercialization activities related to its transdermal sumatriptan product, Zelrix, recently set a price range between $14 and $16 per share, but then lowered its expected price to $10 and went public at that rate. (See BioWorld Today, May 18, 2010, and August 9, 2010.)

On the upside, public biotech investors "are even more committed than four or five years ago," Chris Lowe, chief financial officer of Hayward, Calif.-based Anthera Pharmaceuticals Inc., told BioWorld Insight. "There are fewer meetings overall, but today's meetings are deeper and more productive." A number of companies that would have gone public already in a more favorable market seem to be sitting on the sidelines, added Lowe, whose company numbers among the IPO success stories. Portola Pharmaceuticals Inc., of South San Francisco, is one example he mentioned, as well as Proteolix Inc., which accepted an acquisition deal by South San Francisco-based Onyx Pharmaceuticals Inc. in December 2009 instead of going public. (See BioWorld Today, Oct. 13, 2009, and BioWorld Insight, Oct. 19, 2009.)

Trius clipped its price from $12 to $14 per share for 6 million shares to $5 per share for 10 million shares, netting the San Diego-based company $49 million. The firm is developing an antibacterial drug, torezolid phosphate, a second-generation oxazolidinone antibiotic for Gram-positive infections. The company will develop the drug candidate to initially treat acute bacterial skin and skin structure infections. Trius, in June, reached an agreement with the FDA on a special protocol assessment for its Phase III trial of the oral form. When the agency issued new draft guidance in February for noninferiority clinical trials, Trius revised its study protocol, temporarily delaying its bid to go public, but it soon got back on track. (See BioWorld Today, August 3, 2010.)

Trius is thus far trading relatively flat in the aftermarket, as is NuPathe – but that's an improvement over several of the biotechs that previously braved the current so-called IPO window.

Entering ahead of Trius and NuPathe into the stormy 2010 IPO waters were Anthera and Ironwood Pharmaceuticals Inc., of Cambridge, Mass., among others. Ironwood reduced its target price from a range of $14 to $16 per share to $11.25 for its IPO in February of 2010, but has generally been considered among biotech's most successful IPOs this year and until this month traded above its offering price. (See BioWorld Today, March 8, 2010.)

Anthera joined Ironwood in the spring IPO window by cutting its price in half from $14 per share to $7. The firm first set a price range of $13-$15 per share, but as they went forward with the process and orders began to come in, adjusting the price became "an easy decision," Lowe said. "The investors had spoken."

Other companies in spring 2010's IPO graduating class include such names as Genmark Diagnostics Inc., Accretive Health Inc., Dynavox Inc., Alimera Sciences Inc., Tengion Inc., Codexis Inc., and AVEO Pharmaceuticals Inc., although share prices for these newly public companies dropped across the board, some by as much as 50 percent. (See BioWorld Today, March 2, 2010.)

Piper Jaffray postulates, not surprisingly, that the best leverage to get the next IPO window open will be convincing Phase III data – sad news for smaller companies, which typically have exhausted their start-up funds by the time they complete Phase II experiments. A popular alternate strategy is to find a large pharma partner to fund Phase III trials or to go the merger and acquisition route, like Proteolix. But these are not options for many firms.

Knowing that they will be courting fewer investors in the current market, some companies are more active in forming relationships well ahead of the IPO filing. Some of Anthera's investors had been following the company for two years before the offering. "We would go visit them, not to raise money, but to raise awareness of our science," said Lowe.

The IPO backlog currently includes Complete Genomics Inc., Horizon Pharma Inc., Ikaria Inc., BG Medicine, Rules Based Medicine Inc., Aldagen Inc., and China Nuokang Bio-Pharmaceutical. "Many are pushing ahead," said Riley. "Expect to see a half dozen to a dozen filings over the next six months." The lineup of waiting firms is still significantly below the pre-2007 norm of 20 to 25 on the runway, Riley pointed out. Although 2010 already is looking up, compared to 2009 (when just one company priced an IPO in the first half), offerings remain below normal historical levels. Piper Jaffray blames the usual economic culprits: stagnant wages, unemployment, a poor housing market and a weak dollar. The small-cap health care market rebounded nicely about a year ago, Riley said, and everybody's hoping for a similar comeback in sector overall.

Meanwhile, shortly after Trius' lowered IPO went through, the stock enjoyed a spike in trading. But by late last week it had leveled off, as hints of the opening window foretold by Riley seemed to surface. Specialty firm Horizon Pharma filed for a proposed $86 million IPO, tacking its hopes on HZT-501, a combination of nonsteroidal anti-inflammatory drug ibuprofen plus famotidine for mild to moderate pain, and osteoarthritis and rheumatoid arthritis pain while reducing the risk of NSAID-induced upper GI ulcers. The compound is under FDA review, with a PDUFA date of Jan. 21, 2011.

Pozen Inc. and partner AstraZeneca plc, also questing for a safer NSAID, won approval for their combination naproxen-esomeprazole arthritis drug Vimovo, though another naproxen-based drug, naproxcinod from NicOx SA, however, went down in FDA flames last month. (See BioWorld Today, May 3, 2010, and July 23, 2010.)

Just behind HZT-501 in Horizon's pipeline is Lodotra, a programmed-release formulation of low-dose prednisone acquired in the April merger with Merck KGaA spinout Nitec Pharma AG, of Reinach, Switzerland. That program yielded positive Phase III data, and the company is shooting for a fourth quarter new drug submission. (See BioWorld Today, April 2, 2010.)