At least five medical-technology companies have canceled plans for initial public offerings of their stock within the past few weeks as a result of the deteriorating investment market, according to documents filed with the Securities and Exchange Commission.
The actions are the most recent in a series of indicators that suggest healthcare may be no more successful than other industries in attracting investors during the burgeoning recession. Medical-technology startups could be particularly challenged to access investor capital, said healthcare market analysts, and the trend ultimately could cause a slowdown in drug and medical-device advances.
People look to healthcare as a defensive investment, said Mike Neuberger, global group head of healthcare investment for the investment bank Jefferies & Co. But, we see it as a tale of two cities. Youve got early-stage product development that requires huge investments of capital that may not pay off and the more-stable biotech products companies whose stocks have held up.
The string of IPO cancellations began in early November 2008 when Cardiovascular Systems Inc., which develops catheter systems and other devices for treating artery blockages, notified the SEC it wanted to withdraw the IPO registration statement it filed in January 2008. Company officials cited plans to merge with Replidyne, another devicemaker currently trading on the Nasdaq stock exchange, as its reason for the withdrawal. But Larry Betterley, chief financial officer for Cardiovascular Systems, acknowledged that the troubled investment market prompted the company to seek other means for accessing capital and entering the public marketplace.
Basically, the IPO market dried up, especially for medical-technology companies, so we were faced with very, very few alternatives to get financing, Betterley said. We were a very strong candidate for an IPO. We had a unique product and strong year-over-year revenue performance, but the market has been so unstable.
Under the merger deal, Cardiovascular Systems will receive a $40 million infusion of cash to be used to develop its product lines, and its moniker will replace the Replidyne name.
IPO plans for medical-technology companies continued to be scuttled throughout December with at least four companies citing unfavorable market conditions as the reason for their decisions. Ear, nose and throat devicemaker Acclarent, drug-therapy developer BioTrove, transplant-technology creator TransMedics and medical-imaging devicemaker Zonare Medical Systems all canceled their IPO plans.
I think we had hope that the sell-off we started to see in 2007 was going to be more temporary than it turned out to be and less acute than it turned out to be, Neuberger said of the stock trend. Investors dont want to take a risk, and clearly thats the case in the bio-pharma market. Typically we havent seen consistent payoff in those spaces, so I think we need to see the market improve generally before we see investors willing to take the kind of risk that marries up with early-stage med-tech investing.
Venkat Rajan, industry manager for medical devices at consultancy Frost & Sullivan, expressed similar concerns, adding that the trends could have ramifications on improvements to medical therapies. The next generation of medical technologies is far enough along that it wont be affected, he said. Theyll reach the market in the next five years. But its those other future technologies that are more uncertain that are at risk for not reaching market."
This story initially appeared in this week's edition of Modern Healthcare magazine.
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