Being sold, rather than selling stock, could be the exit of choice again for medical device and drug companies in 2007.
Orange County hasn’t seen an initial public offering by a medical company since 2004, when eye laser maker IntraLase Corp. of Irvine raised $86 million.
Instead, bigger companies have bought a handful of medical device companies here in the past few years.
Last year, a couple of companies tested the IPO waters.
– Alsius Corp., an Irvine maker of instruments and catheters to cool hospitalized patients’ body temperatures, filed to sell up to $40 million of its shares in April.
But six months later, Alsius said it would be bought by Ithaka Acquisition Corp. for about $40 million.
– SenoRx Inc., which is based in Aliso Viejo and makes breast biopsy devices, filed to raise up to $86 million in May, but still hasn’t set an offering date.
– Although not a medical device maker, Foothill Ranch-based nursing home operator SHG Holding Solutions Inc. filed plans to go public late last year, looking to raise $175 million. SHG is the parent of Skilled Healthcare Group, which runs more than 70 nursing and assisted-living homes in five states. No date has been set.
Deals were more common last year.
Vascular Control Systems Inc., which was based in San Juan Capistrano, was bought for about $100 million by Johnson & Johnson’s Ethicon Endo-Surgery unit. Vascular raised some $22 million from venture capitalists, including J & J;’s own fund.
Candidates?
The county still has a handful of well-funded companies that could be IPO candidates. They include Devax Inc., an Irvine maker of drug-coated stents to treat heart and vessel ailments that’s raised more than $48 million, and Eyeonics Inc., an Aliso Viejo eye device maker that’s raised around $40 million and had said in the past that it would consider an offering.
“In contrast to say, six years ago, achieving liquidity for most venture-supported life science companies will be acquisition instead of IPO unless the value of the company is above $150 million to $200 million,” said Ned Olivier, founding general partner of Oxford Bioscience Partners, a venture capital firm with an office in Costa Mesa.
“Even then, I still think the majority of exits will be by acquisition,” he said.
Another factor that may drive deals, Olivier said, is the fact that large drug makers are “badly in need of new products.”
That prompts them to snap up venture-backed companies that have drug candidates, rather than just items that are commercialized, he said.
Merck & Co. spent just more than $1 billion for Sirna Therapeutics Inc., an Oxford portfolio company that Olivier called “a very significant hit for us.”
Sirna, based in San Francisco, is developing drugs based on genetics that could treat diabetes, viral hepatitis and eye problems. Its Web site says it has a partnership with Allergan Inc., the Irvine eye drug maker, to develop drugs to fight age-related macular degeneration.
IPO Timing
OC, which is bigger in medical devices, doesn’t have many biotechnology drug makers that could be acquisition targets.
Initial public offerings should be available for “quality, commercial-stage companies with incredible stories,” said Charles Warden, a managing director in the Newport Beach office of Versant Ventures.
The timing of drug, device and health service IPOs are more about the company’s readiness rather than the market’s, Warren said.
Factors that play into readiness include consistent quarterly growth, having several products and market potential.
“We have been pleased with the performance of our companies,” Warden said.
IntraLase received funding from Versant prior to going public.
IntraLase has been trading in the $22 range in recent weeks, some 38% higher than its $16.25 a share debut in late 2004. The company had a market value of $640 million last week.
