12:00 AM
 | 
Aug 15, 2005
 |  BioCentury  |  Finance

Ebb & Flow

Last week's IPO by Coley (COLY) was the first U.S. biotech IPO to price at the top of the range and then trade up in the aftermarket since small molecule company Theravance (THRX) in October 2004. Investors told Ebb & Flow the reasons had as much to do with the company as with market conditions.

The key is that the company has shown proof-of-principle of a platform that has the potential to produce multiple products.

"In a way it's an ideal IPO company because they have a biotech platform and they've developed their own products on that platform," said Hans Kuepper, a partner at Global Life Science Ventures. "It's not like a lot of other companies that haven't proven their platform and have in-licensed late stage products."

COLY reported in May that a 112-patient Phase II trial of its lead product, ProMune CpG-containing oligonucleotide, roughly doubled tumor response rates in non-small cell lung cancer (NSCLC) when combined with chemotherapy compared to chemotherapy alone (p=0.048)(see BioCentury, May 9).

The technology is in the hot toll-like receptor space, which in March enabled COLY to land a deal around ProMune with Pfizer (PFE), which potentially is worth more than $500 million (see Cover Story).

All told, the story enabled COLY to raise $96 million through the seven times oversubscribed IPO, selling 6 million shares at the top of the $14-$16 range. The price gave the company a post-money valuation of $396.8 million. Partner PFE put in an additional $10 million through a private placement of 625,000 shares at $16.

COLY jumped $2.88 (18%) to $18.88 in its first day of trading and closed the week up $2.45 (15%) at $18.45 on 6.6 million shares traded in the first three days, of which 5.7 million shares traded on the day of the IPO.

The other driver was the interest of generalist investors. "Honestly, I don't think this IPO would have been possible with only the specialist biotech investors participating," said Gert Caspritz, the general partner who managed the COLY investment for TVM. "There were many generalists participating."

Underwriters were Merrill Lynch; JPMorgan; Lazard; and Leerink.

TVM's third hit

TVM Techno Venture Management, one of COLY's biggest shareholders with a 17.4% stake prior to the offering, will get a nice return. COLY was founded in 1997 by Qiagen (FSE:QIA; QGEN) and TVM, based on immunostimulatory technology developed at the University of Iowa.

"We're expecting this is going to be a five to 10X return," Managing Partner Helmut Schuehsler told Ebb & Flow. But he noted that because of dilution over the years, "the series A investors won't necessarily have a higher return than the series E investors. This pattern of returns reflects what we have seen over the last four to five years - that funds that invested in the late 1990s are being diluted so much that their returns are being greatly diminished. It's a sad story."

Other major stockholders prior to the IPO included Thomas, McNerney & Partners (18.3%); Venrock Associates (15.9%); Global Life Science Ventures Funds II (8.7%); and AlpInvest Holding (6.4%).

TVM, the most visible German VC, now has had three portfolio companies float this year - on three different exchanges - with COLY joining reproductive health play Ardana (LSE:AKT) and vaccine companyIntercell (VSE:ICLL).

The firm's most successful investments were 50X returns for reagents company QIA and 25X returns for cardiovascular and pulmonary company Actelion (SWX:ATLN). The firm has had 25 of its companies go public and seven or eight go bust, according to Schuehsler (see "TVM's IPOs," A17).

Scuttlebutt is that TVM is expecting to close a new fund of more than E200 million ($247 million) in September. TVM declined to comment on its plans.

Follow on the money, cont.

Another batch of closings added $127.3 million in aggregate to...

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