Dov sued for late disclosure - Investment funds feel misled after disastrous IPO
ED SILVERMAN
05/02/2002
The Star-Ledger Newark, NJ
An unremarkable drug company has become a remarkable story on Wall Street.
Last week, Dov Pharmaceutical Inc. filed a $65 million initial public offering, an event that might have occurred without much fanfare but for one detail - at the 11th hour, the company amended its prospectus three times to include an accounting change.
The last-minute adjustment, which involved slightly larger losses at an off-shore joint venture, caused a stir among investors. Fearing another Enron-style accounting scandal, they sent the stock down 33 percent the first day of trading, the worst debut by an initial public offering in two years.
Now, several investment funds are filing lawsuits, claiming Hackensack-based Dov failed to disclose material information promptly enough. In fact, some money managers say they weren't even made aware of the accounting change until after stock began trading last Thursday.
"Investors who placed orders to buy Dov at the opening price of $13 per share had no chance to react to Dov 's inadequate disclosure regarding its previously unreported losses," Alpine Asset Management said in a lawsuit filed in U.S. District Court in Newark.
Wall Street is swirling with speculation that some large customers are balking at paying the underwriters - CIBC World Markets and Lehman Brothers - for the shares they ordered. Officials at Dov , CIBC and Lehman didn't return calls seeking comment.
" Dov must have convinced the underwriters that the changes were immaterial," Kyle Huske, a stock- market analyst at IPO.com, told CBSMarketWatch. "Otherwise, you'd expect them to hold up the deal and give it more time."
The reception given Dov , one of many unknown drug makers that dot New Jersey's sprawling pharmaceutical landscape, wasn't what anybody expected.
Even with an increase of 58 cents yesterday, to $8.08, the stock remains 37 percent below its IPO price.
Dov was launched in 1995 by Arnold Lippa, a 55-year-old Rutgers University graduate, who previously co-founded Praxis Pharmaceuticals Inc. and later started an investment company that specialized in biomedical companies.
Along with Bernard Beer, 69, a former American Cynamid executive, Lippa licensed several medicines from Wyeth. Their key products, which are in various stages of development, would be used to treat pain, anxiety, depression and insomnia.
As many small drug companies do, Dov formed alliances with partners that include Biovail Laboratories Inc. and Neurocrine Biosciences Inc. Then there is a joint venture with Elan Corp., an Irish company that's been under a microscope this year for accounting problems.
That venture, which is based in Bermuda, was responsible for the last-minute accounting change. The adjustment, which was made in a filing late last Wednesday, widened Dov 's 1999 loss from the venture to from $10.2 million to $11.9 million.
Dov has yet to show a profit. Last year, losses totaled $5.6 million. And only one of its drugs has gotten as far as late-staging testing.
Even so, Dov and its underwriters were so confident the stock would be in demand that early last month, the offering price was raised to between $15 and $17 a share, from $14 to $16. The optimism may have reflected the fewer number of new offerings in recent months.
But some analysts said the repricing was unusual because the drug and biotech sectors are weak. And one analyst said this episode is likely to reverberate beyond Dov .
"You can look for wide-sweeping acts of vengeance by Wall Street to just put pressure on any initial offering that comes out over the remainder of the year," David Menlow of IPO Financial Network wrote clients this week. "And this will be a problem for the pharmaceutical sector, too." |
