Ironwood IPO Looks Like Good News for Biotech, Price Cut Be Damned!

Ironwood Pharmaceuticals took some flak today for pricing its initial public offering -- the first true biotech IPO in nearly two years -- at a discount. But some sources are saying the deal is a lot better than it looks at first blush.

The biotech industry had a lot riding on Ironwood's public debut. The IPO window slammed shut after Bioheart's measly $5.8 million offering in early 2008, and although three drug-makers priced in 2009, none offered a true test of investor appetite for biotech.

Enter Ironwood (IRWD), which priced 16.7 million shares at $11.25 each, falling short of its $14 to $16 target range. According to Xconomy:

Ironwood Pharmaceuticals showed today that...investors' appetite for the speculative business of drug development is modest.

Ironwood did make it out the IPO window and then traded up, a success in and of itself, as Xconomy notes. And the firm raised $188 million -- more than any biotech since Ribapharm's $260 million offering in 2002 (not counting Talecris, which actually makes money and thus is arguably not biotech).

A portfolio manager who participated in the Ironwood IPO also noted that the firm's price cut is a red herring because IPO price targets don't mean much to begin with. He added that there was plenty of demand for the deal, which was rumored to be four times oversubscribed and tightly distributed to a select group of outside investors, with insiders choosing to take a hefty portion.

So does that mean it's game-on for biotech IPOs?

Not everybody (in fact hardly anybody) looks as good as Ironwood, with strong Phase III data on a potential mega-blockbuster drug and lucrative partnerships. But for biotechs with good late-stage data, solid value-driving milestones and a reasonable valuation, bankers and buy-siders alike say: Bring it.