A nearly dead market for initial public offerings isn’t stopping TherOx Inc., an Irvine medical device maker, from testing the waters.
TherOx, which develops and sells devices to treat oxygen-deprived tissue, filed plans earlier this month to raise up to $100 million in a public offering.
TherOx’s filing is the only one by an Orange County company so far this year. It’s one of 78 nationwide this year.
Of those 78 companies, only two have started trading. About 30 that filed last year have started trading in 2008.
By contrast, 94 companies filed for public offerings nationally last year, including device makers Masimo Corp. of Irvine and Aliso Viejo-based SenoRx Inc. Masimo and SenoRx started trading on Nasdaq last year.
“There’s very little competition in the IPO market at this point,” said Dennis McCarthy, a managing director with Los Angeles-based B. Riley & Co., an investment bank with a Newport Beach office. “It’s a bit of a gamble.”
TherOx Chief Executive Kevin Larkin declined an interview in the run-up to the public offering.
Of the stocks that have gone public this year, three are medical device makers.
Shares of CardioNet Inc., a maker of patient monitoring devices out of Conshohocken, Pa., are up about 50% since their March debut with a recent market value of $630 million.
CardioNet’s chairman is Randy Thurman, a former director of Valeant Pharmaceuticals International, the Aliso Viejo drug maker.
Mako Surgical Corp., a Fort Lauderdale, Fla.-based maker of surgical robotic devices and implants, is off 20% since its February debut with a recent market value of $140 million. And Sunrise, Fla.-based biotechnology company BioHeart Inc.’s shares are down 40% since their February debut with a recent market value of $40 million.
TherOx’s backers include big names. Menlo Park’s Kleiner Perkins, Caufield & Byers owns 28% of TherOx, according to filings with the Securities and Exchange Commission. Other investors include New York-based New Science Ventures LLC, with a 15% stake and Menlo Park’s Integral Capital Partners, at 14.5%.
“With the blue-chip investors involved in TherOx, maybe this potential IPO is the exception which gets funded,” McCarthy said.
Another option could be that TherOx gets bought before going public. Medical device makers have been known to file for an offering with an acquisition in mind as plan B.
That was the case with Aliso Viejo-based Eyeonics Inc., which filed to go public last year and ended up being bought by Bausch & Lomb Inc.
TherOx, which is unprofitable, could give some investors pause in a tumultuous stock market.
In its filing, the device maker said it had an accumulated deficit of $88.2 million since its inception in 1994.
For the six months through June 30, TherOx lost $5.1 million on what it called “nominal revenue” generated through licensing and foreign product sales.
The company is contemplating its offering at a time when erratic stock performance and a souring economy are converging and when investors have been of mixed minds about medical device makers.
Masimo, which makes devices to measure a patient’s oxygen level, raised $233 million when it debuted last August. It had sales of $224 million when it went public.
After a big run-up last year, Masimo’s shares are basically flat for 2008 with a recent market value of $2.2 billion.
Shares of SenoRx Inc., a maker of breast biopsy devices that went public in early 2007, are down about 40% this year with a market value of $90 million as of last week.
Other medical device makers got gun shy after filing for public offerings.
Devax Inc., an Irvine maker of drug-coated stents for treating diseased blood vessels, filed to go public in May but pulled its plans in December after it determined that it was no longer in its best interest to do a public offering.
Lead Product
TherOx’s lead product is the SuperSaturated Oxygen Therapy system, which is designed to withdraw a small amount of a patient’s blood, mix it with superoxygenated saline and then deliver the oxygen-rich blood to the coronary artery.
TherOx said in its filing that it’s focused initially on developing the system to reduce the amount of dead heart muscle that can occur in heart attack patients.
The company still is a bit away from selling the system in the U.S., although it has submitted an application to the Food and Drug Administration.
“We do not expect to have a commercial product in the U.S. until at least the second half of 2009, if at all,” TherOx said in its filing.
The company said it wasn’t aware of any other companies doing exactly what it does, but acknowledged in its filing that it would compete with existing drug treatments and procedures using other types of medical devices.
TherOx has 24 workers. In its filing, it said if regulators cleared its system, it expects to rapidly expand its operations.
The company plans to trade on Nasdaq under the ticker “THER.”
