Noteworthy or Trend ? For a market in need of Companies;
By Brian Gormley
Tengion Inc.’s initial public offering on Friday harks back to the days when small venture-backed companies routinely employed boutique investment banks to escort themselves to the public markets.
The biotechnology company raised $30 million in the IPO, the smallest venture-backed offering since Feb. 19, 2008, when another unprofitable biotech, Bioheart Inc., earned just $5.8 million in proceeds in a slimmed down offering. Tengion is also the first such company since Bioheart to use boutique banks solely as bookrunners - which do the majority of work and collect the largest fees.
A year ago, the National Venture Capital Association urged the venture capital community to hire boutiques to take companies public, much like the industry did during the 1990s, arguing that VCs have relied too heavily on so-called bulge-bracket banks that aren’t interested in smaller companies.
Boutique investment banks can handle smaller transactions that have less appeal to larger banks. They’re also more likely to have staff with specialized experience needed to market offerings from small technology and health care companies to long-term investors, some observers say.
In July, Leerink Swann, a health-care investment bank, hired a team of investment bankers from Merrill Lynch to expand its ability to work with biotech and medical device companies and fill a void it saw in the marketplace. Leerink was the lead underwriter on the Tengion deal along with Piper Jaffray.
Offerings from large businesses don’t need heavy marketing because investors already know and understand them. But small biotech companies are “stories that need people to roll up their sleeves and understand what the value is,” said Bryan Giraudo, one of the Leerink managing directors who joined Leerink from Merrill Lynch.
Tengion is that type of company. “Tengion is a unique story that is going to play for a unique set of investors, so that requires a very nuanced sell process,” Giraudo said.
An analysis of the other 16 venture-backed IPOs since the start of 2009 shows that only one company, Calix Inc., used a boutique bank as a bookrunner, and even that bank, Jefferies & Co., was joined by Goldman Sachs and Morgan Stanley. And only one of those IPOs was worth under $50 million - Anthera, which raised $42 million in its Deutsche Bank-led offering on Feb. 28.
There’s a bit more promise with the companies left in IPO registration. Of those 47 companies, 21 have at least one boutique bank as a bookrunner, and 14 of those have no bulge-brackets among the leads. Slightly less than 50% of this year’s 24 filers hired boutiques. There are five filings overall with a estimated offering size of $50 million or less, and 13 valued at $75 million or less.
Tengion, which develops replacement organs for people with bladder cancer, originally expected to raise anywhere from $40.8 million to $51 million in the offering, based on an $8 to $10 estimated share price and 5.1 million shares, but the underwriters cut the share price to $5 while raising the amount of shares to 6 million. Its market capitalization now sits at about $55 million.
-With Scott Austin |
