Ikaria IPO Finds So-So Demand, Company Slashes Proposed Offering 38 Percent

11/10/10Follow @xconomy

One of the hotly anticipated life science IPOs of the fall is getting a tepid reception during a rough week in the stock market.

Ikaria, the Clinton, NJ-based biotech company with futuristic “hibernation-on-demand” technology from the Fred Hutchinson Cancer Research Center, has scaled back its IPO plans this week, according to a filing today with the Securities and Exchange Commission. Instead of offering 10 million shares at a range of $15 to $17, the company is now pitching 8 million shares at a price of $12 to $13. If Ikaria can close this deal at the midpoint of its new price range, it will raise $100 million—about 38 percent less than the $160 million it could have nabbed at the previous midpoint. Instead of establishing a beginning market capitalization of $711 million, the new deal terms would peg Ikaria’s value at about $530 million.

This transaction means a lot to some VIPs on the Seattle biotech scene. Arch Venture Partners, the largest biotech venture investor in Washington state, has 3.5 million shares in the company. Those holdings would have been worth $56 million under the old terms sketched out for investors, as I described in a feature story last week. Now, at the more modest price, Arch’s stake, about 8.2 percent of the total shares in the company, would be worth about $43.3 million.

The Fred Hutchinson Cancer Research Center received 807,500 shares of common stock in Ikaria, plus 142,500 shares of preferred stock, as part of the original technology license agreement in 2005, according to an exhibit attached to the Ikaria investor prospectus. Mark Roth, the inventor of the “hibernation-on-demand” technology at the Hutch, was granted 2,187,790 shares at the time. It’s unclear to me how much the Hutch and Roth’s ownership stakes are worth because their holdings were altered through a reverse stock split. But it can’t be good when the overall pie just got 38 percent smaller.

Neither the company, nor any of the investors or interested parties, are allowed to talk on the record now while the deal is still in motion.

The climate for IPOs has started to perk up this fall, with 18 deals pricing in October, making this the busiest time for new stock offerings in three years, according to Dow Jones. Menlo Park, CA-based Pacific Biosciences (NASDAQ: PACB), the maker of super-fast and low-cost gene sequencing instruments, clearly struck a chord with investors last month when it raised $200 million through an IPO that set an initial market valuation of about $800 million.

But this week hasn’t been so happy in the market. There was a negative headline today from the Associated Press about how the Chinese central bank was tightening up lending, which sent stock markets indexes down in Europe and the U.S. We’ll watch this deal closely to see how much of a windfall this could actually create for Arch and the Hutch.

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