A mixed market for medical device stock offerings isn’t putting off a pair of Orange County companies from testing the waters.
Masimo Corp. and Devax Inc., both of Irvine, are the latest device makers gearing up for initial public offerings. Another, Aliso Viejo-based SenoRx Inc., went public in March.
Devax, which makes stents to treat blood vessel diseases, filed plans to raise up to $85 million earlier this month.
Masimo, a maker of devices to measure a patient’s oxygen level, filed its $150 million offering in April.
Mixed Market
Recent device offerings have seen mixed results.
Lending some encouragement last week was Madison, Wis.-based TomoTherapy Inc., maker of a radiation treatment for cancer. It shares priced nearly 20% higher than expected, raising $223 million with a $1 billion market value last week.
Shares of SenoRx, a maker of breast biopsy devices, were flat last week since their debut. The company had a recent market value of $136 million.
Xtent Inc., a stent developer in Menlo Park, is off 25% from its February opening with a recent market value of $289 million.
And Accuray Inc., a Sunnyvale company that makes a radiosurgery device to treat tumors, saw its shares open above their offering range but now are flat from where they started trading at back in February. The company was worth $1.3 billion last week.
Devax and Masimo likely are pursuing offerings for their own reasons, said Dennis McCarthy, a managing director for B. Riley & Co., an investment bank with offices in Newport Beach and Los Angeles.
“For the device guys, I think it’s very situational,” he said. “Masimo is very different from Devax.”
Masimo is the more mature company, with yearly revenue of about $224 million. And it’s profitable, earning $181 million last year,helped in large part by royalties from a legal settlement.
By contrast, Devax is some time from selling its product and posted a net loss of $4.1 million in this year’s first quarter.
“They’re worlds apart, so you can’t really generalize anything going on between those two,” McCarthy said.
For Devax, market changes,including the withdrawal of CoStar, a drug-eluting stent being developed by Johnson & Johnson’s Conor Medsystems LLC’s unit,could be driving its decision.
“There’s a little bit of a vacuum in the market, and that’s what’s creating an opportunity for a company like Devax to accelerate their development,” he said. “Maybe to do that, they’re better off doing public capital rather than private capital.”
IPO vs. Buyout
For most device makers, the choice comes down to going public or selling to a larger company, said Ralph Sabin, a managing director in the Irvine office of Encino-based healthcare venture investor Pacific Venture Group.
“A company would choose to go public rather than sell itself because, No. 1, they don’t think they’re getting the value they’re worth in the M & A; market,” he said.
For some companies, going public is a way to establish their value to potential suitors down the road, Sabin said.
Take IntraLase Corp. of Irvine, which raised $86 million in a public offering in 2005. Earlier this year, it sold for $808 million to Santa Ana-based Advanced Medical Optics Inc.
“There have been some successes,” Sabin said. “It’s usually the case that the company will try that strategy and ultimately get acquired, but hopefully having established a higher value.”
