CurrentOfferings.com Story:

Cutera prices at bottom of range

: By Andrew Morse, The Deal, March 31, 2004

Weakness in the market for new shares of life sciences companies was evident again Wednesday, March 31, as a surgical instruments maker priced at the bottom of its range and a drug developer said it was dropping its expected price by 25%. Cutera Inc., a Brisbane, Calif.-based maker of laser devices used to surgically remove hair, sold 3.532 million shares at $14 apiece, the bottom of its $14 to $16 range. Tepid demand for the shares was evident in early trading; though Cutera opened at $14.59, it was trading at $14.04 by midday and appeared poised to fall through its offer price.

Also on Wednesday, gastrointestinal drug maker Santarus Inc. of San Diego said it had lowered the expected price of its initial public offering to $9 from $11 to $13, and the amount of shares it hopes to sell to 6 million from 7.1 million.

"Right now, we're seeing overkill," said Jeff Hirschkorn, a senior analyst at IPO research boutique Current Offerings Inc. "There's so many of these biotech deals no one can differentiate them anymore."

The events suggest the softness already apparent in the life sciences IPO market shows no sign of abating anytime soon. Overall, companies are dogged by a stock market that appears stuck in neutral and in danger of falling, while many individual companies appear too immature to be selling shares publicly.

Nine companies, including Cutera, have gone public so far this year, more than in all of 2003. But the offerings have been a mixed bag, with some mature companies performing very well and less-developed enterprises quickly sinking beneath their offering price.

Cutera's chief product, the CoolGlide family of laser devices, is used for removing unwanted hair. Cutera is expected to introduce a new line of CoolGlide products that can be used to treat vascular problems in a noninvasive manner.

The company has been profitable in all of the past three years and recorded 35 cents per diluted share in net income in 2003.

Cutera is, however, involved in an intellectual property lawsuit with competitor Palomar Medical Technologies Inc. that its prospectus clearly states may hurt its position and prevent it from selling many of its current products. Palomar claims that Cutera's hair removal products violate a patent it has licensed and seeks compensatory damages, according to the Cutera filing.

"If found liable, we could ... be ordered to stop selling any products that perform hair removal, representing substantially all of our revenue in 2003," Cutera said in the prospectus. "If found liable, we do not know whether we could redesign our products to avoid future infringement."

Piper Jaffray & Co. led Cutera's IPO, with SG Cowen and RBC Capital Markets co-managing. Cutera received legal advice from David Saul and Philip Oettinger of Wilson Sonsini Goodrich & Rosati PC, while the underwriters used Michael Hall and William Davisson III of Latham & Watkins LLP.

Santarus has posted losses in each of the past three years, culminating in a $1.30 per share shortfall in 2003. Neither of the company's main product candidates, Rapinex capsules and Rapinex chewable tablets, has received U.S. Food and Drug Administration approval, though the company has filed new drug applications with the agency for both products.

The deal was expected to price Wednesday night, though several offerings, including that of Memory Pharmaceuticals Corp., have been pushed back in recent weeks.

SG Cowen and UBS Investment Bank lead the Santarus underwriting syndicate, which also includes RBC Capital Markets and Thomas Weisel Partners LLC. Santarus turned to Scott Wolfe, Cheston Larson and Adam Simpson of Latham & Watkins for legal advice, while the underwriters used Frank Golay Jr. of Sullivan & Cromwell LLP.