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New IPO Window: Fragile, Handle with Care, Remember DOVP

With initial public offerings priced last week by specialty pharma player Cumberland Pharmaceuticals and medical billing provider Emdeon, it looks like only a matter of time before true biotechs start making their way out the IPO window. But buy-siders, venture capitalists and even bankers are worried about the wrong candidates ruining everyone's fun.

As BNET reported previously, a few biotech-ish companies already are on file: Talceris Biotherapeutics has gotten the most media buzz, but Omeros Corp. and Prometheus Laboratories are ready and waiting too. There aren't any traditional biotechs in line yet, but BioWorld Insight reported that bankers are seeing a lot activity behind the scenes and expect a flood of IPOs in the first half of 2010.

That's not necessarily good news. One VC lamented that the problem with biotech IPO windows historically has been that once they're open, they're wide open and any bozo can go through. And bankers, who make lots of money off IPOs, haven't been all that great at policing the quality of the biotechs they take public (remember when UBS Warburg's unofficial nickname was UBS Whoreburg?).

Just as good IPOs can build appetite for future offerings, bad IPOs can end the party faster than an analyst who refuses to get on board with a banker's pick. Just look at what happened with DOV Pharmaceutical in early 2002. The biotech priced its IPO at the bottom of its recently-lowered range and immediately dropped 30 percent, ruining the IPO market until late 2003. DOV now trades at two cents on the Pink Sheets.

(And for another example of how good bankers are at policing themselves, recall that CIBC was on the books for both DOV and Aderis Pharmaceuticals, which was scheduled to price its IPO a day later but had to withdraw, eventually selling its assets and shutting down).

Of course, bankers aren't stupid â€" they of all people have suffered in this long drought without IPO commissions, and some have already started talking about the need to make sure that only high-quality offerings are brought to market this time around. Which makes me wonder if this window will be different, perhaps more selective, than in the past. Any thoughts?

Fragile photo by Flickr user mrbill, CC.
Disclosure: In my past life as a pr hack I once worked with Aderis.

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