Ironwood Pharma IPO Price Cut Could Be Only Half the Story

2/3/10

This may not be the bellwether for the IPO market that people were hoping for in the life sciences industry. Cambridge, MA-based Ironwood Pharmaceuticals priced its initial public offering of at least 16.67 million shares last night at $11.25 per share, far below the $14 to $16 range that the firm proposed last month.

Smart people were projecting the IPO of Ironwood, which is trading on the NASDAQ market under the symbol “IRWD,” to be a huge hit. The company is viewed as unique because, although it doesn’t have a product on the market, it has completed two pivotal trials for its lead drug linaclotide for chronic constipation. It’s also raised more than $300 million since it was formed in 1998. Historically, most biotechs don’t have that much going for them when they attempt an IPO.

Doug Fambrough, a general partner at Oxford Bioscience Partners in Boston, said this morning that he thinks it’s an overall positive development that Ironwood has moved ahead with its IPO, even at the lower price, rather than pulling the deal altogether. Ironwood would have left a bad taste in the mouths of investors on Wall Street if it had nixed the maiden public offering, he added. (Luke spoke to Fambrough and other industry leaders last week amid the positive buzz about this IPO.)

“For the first half of the story, it’s gone pretty well for the [life sciences] industry,” Fambrough said. “The second half of the story is how well Ironwood’s stock trades over the next two weeks.”

Still, there’s no avoiding the fact that public investors pushed back on the proposed $14 to $16 per share price range for this deal. The $11.25 share price values the company at $1.07 billion, as opposed to the more than $1.5 billion market cap it would have created at $16. Because Ironwood is more mature than most biotechs that attempt IPOs, it’s unlikely that other life sciences firms at earlier stages of development will fetch as high a price as Ironwood in their initial public offerings, according to Fambrough.

We’ll be tracking how Ironwood’s stock trades in the coming days to cover the second half of this story.

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