CurrentOfferings.com Story:

Corgentech latest biotech surge

By Andrew Morse, Feb 12, 2004, The Deal

After pricing at the high end of their expected range, shares of gene-therapy designer Corgentech Inc. popped Thursday, Feb. 11, raising hopes that the choppy market for biotechnology IPOs is smoothing.

Shares of the South San Francisco, Calif.-based company rose nearly 7.3% in early trading to $19.31. The company's shares had priced at $16 the night before. The company raised the offering 20% to 6 million shares at the last minute and, if a 900,000-share over-allotment provision is exercised, the deal will be worth more than $110 million.

The debut is the fourth by a biotechnology company this year, marking a return of biotechnology IPO market. A fifth, Dynavax Technologies Corp., was also expected to price Wednesday, but had been delayed until later Thursday.

An 18-month drought in biotechnology that began in April 2002 ended in late 2003, though the seven companies that went public by year's end have turned in mixed performances. The class of 2004, led by the stellar performance of Eyetech Pharmaceuticals Inc., has fared better. Still, Renovis Inc. priced below its expected range and GTx Inc.'s have slipped since opening a week ago. "I'm very impressed with Corgentech," said Jeff Hirschkorn, senior analyst at IPO boutique Current Offerings. "Across the board, you're seeing strength in the biotech."

Like many of the new biotechnology IPOs, Corgentech sports a co-development pact with a leading pharmaceutical company, in this case Bristol-Myers Squibb Co. The deal, signed in October 2003, is potentially worth $250 million to the smaller company. Corgentech and Bristol are developing E2F Decoy, one of Corgentech's gene-related therapies known as "transcription factor decoys."

TF Decoys are short strands of DNA used to strengthen the walls of grafted veins to maintain blood flow. E2F Decoy, administered through the skin during surgery, is in two Phase 3, or final stage, clinical tests. Late-stage projects have also been prevalent in existing IPOs.

Bristol owns an 8.3% stake in the company after the IPO. J.P. Morgan Partners owns 19.1%, down from 23.7%.

Credit Suisse First Boston and Lehman Brothers Inc. underwrote the deal with the involvement of CIBC World Markets and Piper Jaffray & Co. Corgentech turned to attorney Matthew Hemington at Cooley Godward LLP, while Alan Mendelson and Laura Bushnell at Latham & Watkins LLP represented the underwriters.

Dynavax, of Berkeley, Calif., hoped to price 6 million shares after the close of trading Thursday. The deal could raise up to $84 million if it prices atop its $12 to $14 range.

The company is developing drugs to treat and prevent allergies and infectious diseases. Unlike Corgentech or the rest of the Class of 2004, Dynavax has neither a drug in Phase 3 clinical trials nor a partnership with a major pharmaceutical company.

The company does, however, expect Phase 3 trials of two of its products later this year. The products are based on Dynavax's proprietary short sequence synthetic DNA process, which triggers an immune system response to fight disease. The technology is known as immonostimulatory sequences, or ISS. Its lead products fight ragweed allergy and hepatitis B. "There's no comparing these two companies," said one IPO analyst who asked not to be named. The analyst said the delay in Dynavax's pricing was "not surprising."

Although the company has no partnerships with major pharmaceutical firms, it is connected to the industry. President and CEO Dino Dina came from Chiron Corp., one of the world's leading biotechnology companies, where he was in charge of the vaccines business. Board member Jan Leschly, chairman and partner of Care Capital LLC, was CEO of SmithKline Beecham plc from 1994 to 2000.

Sanderling Ventures of San Mateo, Calif., will own 8.8% of the company after the IPO, down from 11.8%; Forward Ventures IV LP of San Diego, 6.3% from 8.5%; Alta California Partners L.P. of San Francisco, 5.9% from 7.9%; and InterWest Partners V LP, 5.9% from 7.9%.

Also Thursday, Cepheid Inc., a Sunnyvale, Calif.-based maker of biological agents that purify DNA and detect contamination, said it priced a 5.5 million share secondary offering at $11.25 per share. Underwriters have the option to sell an additional 825,000 shares. In mid-morning trading, the company's shares were down 1.5% at $11.48.