CurrentOfferings.com Story:

Xcyte Therapies Files for IPO

By Andrew Morse, Feb 17, 2004, The Deal

Seattle-based Xcyte Therapies Inc. said Tuesday, Feb. 17, it planned to sell 4 million shares in an initial public offering that could raise up to $60 million as biotechs scramble to take advantage of a new funding window.

Xcyte Therapies, which works in the field of individualized medicine, develops therapeutic products that enhance natural immune responses to treat cancer, infectious diseases and other conditions associated with weakened immune systems. But unlike successful offerings from earlier this year, Xcyte has neither a late-stage drug nor a Big Pharma patron.

The offering, made public in documents filed with U.S. Securities and Exchange Commission, comes as the choppy market for biotechnology IPOs begins to smooth. A spurt of seven IPOs late last year broke a drought of a year and a half that began in April 2002. Four biotechs have made their debuts this year.

The offerings that have done the best, such as Eyetech Pharmaceuticals Inc., are those from companies with more developed products and more advanced business plans. For example, Eyetech, which is up more than 40% since its debut, has a Phase 3 drug and an alliance with Pfizer Inc. to commercialize the product.

By that measure, Xcyte's offering may have a rough reception. The company's most advanced products, for multiple myeloma and HIV, are in Phase 2 testing. The company has only one major partnership, to develop an HIV drug with Germany's Fresenius Biotechnology GmbH. That project is in Phase 1 development.

Analysts said that Xcyte's offering, should it be completed, may be a strategy for developing relationships with the underwriters, who could then help finance secondary offerings. Piper Jaffray & Co. and RBC Capital Markets are leading the deal, with Wells Fargo Securities LLC and JMP Securities.

"What they're banking on is that they'll have a relationship and they'll be able to get secondary funding when they get to Phase 3," said Jeff Hirschkorn, a senior analyst at Current Offerings. "Look at their team. They've got deep pockets."

Phase 3 trials are typically the largest of all stages of clinical testing. Because the patient populations are so large, Phase 3 tests usually require much more funding than earlier stages.

Xcyte operates in what is a promising field, individualized medicine. Xcyte's technology works by taking T cells and stimulating them to recognize cancer or other diseases. They are then injected back into a patient's body to attack the disease.

The company is backed by Paul Allen's Vulcan Ventures, as well as the investment arm of Microsoft Corp.

Still, the absence of a partnership or a late-stage drug has hobbled some attempts to go public. DynaVax Technologies Corp., which has no Phase 3 drug or big name co-development deal, was moved to day-to-day status last week though it had originally been expected to price.

Peninsula Pharmaceuticals Inc., an antibiotics maker in Alameda, Calif., that filed for an IPO last week, might do better. It has ongoing Phase 3 trials and a partner in Japanese drug giant Shionogi & Co.

The U.S. biotech IPO market isn't the only one that is in the midst of revival. On Tuesday, Ark Therapeutics Group plc, the U.K.'s largest privately held biotechnology company, said it was restarting a planned offering that was scrubbed in May 2002.

Credit Suisse First Boston and Nomura International plc are leading the offering, which could come in about a month and will likely raise about �50 million ($95 million).

Ark has many of the characteristics that have marked successful offerings. In addition to products in late-stage testing, it already has a marketed product in Kerraboot, a wound dressing.