What Fool Will Buy the Talecris IPO? Oh Wait, That'll Be Me.

Last Updated Oct 26, 2009 11:06 PM EDT

It's hard to imagine why anyone would want to buy a piece of Talecris Biotherapeutics' proposed $850 million initial public offering.

VentureBeat said it best when Talecris tried to go public two years ago:

So what we have is a profitable but relatively slow-growing biotech with huge debts, run by executives who are themselves bleeding substantial amounts of cash out of the business, which is likely to remain heavily indebted after its owners siphon off most of the proceeds from an offering roughly four times the size of any other biotech IPO in almost a decade.
Let's take each of these claims in turn, shall we?
  1. Talecris is profitable--but not that much: Unlike most biotechs, Talecris actually has revenues. The company booked an impressive $1.4 billion last year from the sale of plasma-derived products like immune globulin. But all that revenue resulted in net income of just $65.8 million.
  2. Talecris has huge debts: The company used debt to spin out of Bayer AG in 2005 and owed $1.1 billion as of June 30. At $66 million a year, that's going to take 16 years to pay off.
  3. Talecris' executives are bleeding cash out of the business: Talecris' CEO earned $2.6 million in cash last year and about $16 million all-inclusive. According to BioWorld's 2010 Executive Compensation Report, the average biotech CEO pay was $566,404 in cash and $1.03 million total.
  4. Talecris will remain heavily indebted: Talceris already paid out $833.2 million in dividends to its stockholders â€" primarily Cerberus Partners â€" in 2005 and 2006. About one-third of its IPO proceeds will go straight to Cerberus, and the rest will go toward paying down half of the debt.
  5. Talecris is aiming for an outrageously large IPO: Using BioWorld Snapshots, the only biotech IPO I could find that even came close was Ribapharm Inc.'s $260 million debut in 2002. For comparison, the only drug company to price this year â€" revenue-generating specialty pharma Cumberland Pharmaceuticals â€" raised $85 million.
So who's going to buy this dog of an IPO? If it doesn't sell, it won't be for lack of trying: Talecris has hired seven banks to market the deal. I'm guessing fund managers who are new to biotech might be impressed by that â€" probably the kind of folks who manage the mutual funds in my 401(k). So I guess that makes me the fool who'll be buying--

Fool photo by Flickr user Magnus_Agnus, CC

  • Trista Morrison

    Trista Morrison is a staff writer at BioWorld Today, a daily newspaper that