Mind your fingers as the IPO window closes

Market analysts are wondering whether the window for Australian biotech IPOs has slammed shut.

Recent uninspiring debuts from opthamology specialist Regenera (ASX:RGA) and stem-cell therapeutics company Cygenics (ASX:CYN) did not augur well for other companies on the ASX runway. But it was the poor showing last week of Sydney-based Avastra (ASX:AVS) -- in which shares dropped below their AUD$1.00 issue price to close at $0.85 -- which confirmed investor sentiment.

Avastra sold 8 million shares at $1 per share -- equivalent to 29 per cent of the company - to raise $8 million in the float. The company's scrip has since fallen further, and is trading around the $0.70 mark.

"I would say that the Avastra raising indicates [the IPO window] is closing fast," said Stuart Roberts, a biotechnology analyst at Southern Cross Equities. "Market opinion generally regarded the capitalisation at which it was floating -- approximately $19 million -- as too high. That indicates that it will get more difficult to get issues away.

"That said, this is an environment where the Southern Cross Equities Australian biotech index has fallen from 1659.86 at the end of March to 1477.91 - an 11 per cent fall. In that period biotech companies that are listed have raised $137 million, as against a mere $51 million in March 2004 quarter, and $28 million in the June 2003 quarter.

"The wash-up of this is that appetite for biotechnology remains strong but pricing is an issue."

When compared to international markets, the Australian appetite for biotech IPOs has been healthy. The outlook for US IPOs -- bright in the early months of this year -- has dimmed as companies have been forced to cut their offering prices, and then cut them again.

In Europe, the market has been jittery since two recent IPOs, Swiss company Basilea and Britain's Ark Therapeutics, fell below their issue prices. Another debutante-in-waiting, French biotech Immuno-Designed Molecules, recently postponed its Paris IPO at the last minute, citing difficult market conditions.

It was in these conditions that Norwood Immunology -- a spin-off of Australia's Norwood Abbey (ASX:NAL) -- found its listing on London's AIM index floundering. Norwood had originally planned to raise around $40 million (£15 million), but was forced to lower its expectations.

The market capitalisation of Norwood Immunology upon admission to AIM this week was expected to be approximately $122 million, significantly below the pre-money target valuation of £100 million (AUD$263 million) given by advisers KBC Peel Hunt.

Stuart Roberts has little sympathy for Norwood's plight. "There is an anti-Australian chauvinism amongst listed biotechs. They are absolutely convinced that the treatment of their stock will be better overseas. Perhaps those stocks can get better treatment at home over time."

Meanwhile, Avastra company secretary Warwick Pearce believes that slump in the company's shares are "a sign of the times".

"It's been tough for any biotechnology company to list -- very few have listed at a premium and a lot have been pulled. We're very happy to have raised the money in a touchy market.

"I think the price is soft because we haven't got any news to report. I think what will happen is when we get some news out there we'll see a big change.

Avastra's BioWeld technology -- developed at Macquarie University and the Microsearch Foundation of Australia -- uses a protein solder which is activated by laser light to join arteries and veins. According to the company, BioWeld bonds can take as little as 3 minutes to fuse blood vessels, compared to the 25 minutes needed for normal sutures.

Avastra plans to commence clinical trials in September with a 24-patient study, and anticipates regulatory approval and its first sales in non-US markets by 2005.

Pearce said that although there had been much talk in the surgical community about the technology, few surgeons had been inclined to invest.

Meanwhile, shares in Regenera have consistently traded below their issue price of $0.50, and Cygenics has just kept its head above water, with shares trading around their $1.00 issue price.

Watching the markets with concern will be cell therapeutics company Living Cell Technologies -- due to list on July 14, and Biopharmica, which will float in early July.