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Medical IPOs Sustain Discount Trend

Last year was an active one for medical IPOs, and this year looks likely to keep pace.

There were 36 medical companies that went public in 2006, the third-largest number since 1999 when IPO-tracking firm Renaissance Capital started keeping records.

However, 78% of those medical companies went public at a discount to insiders' hopes and underwriters' expectations -- the worst performance ever for medical IPOs, says Renaissance Capital. By contrast, only 32% of last year's 162 non-medical IPOs went public at discounted prices.

Renaissance Capital defines a discount as the difference between an IPO's offer price and the midpoint of the price range first pitched by underwriters. For example, if a company seeks a range of $9 to $11 a share and it goes public at $5, the discount is 50%.

Medical IPOs, especially biotech offerings, are notorious for discounts. Even in 2000, the best year for medical IPOs, 44% of 80 public offerings were discounted.

Last year, "investors' risk tolerance may not have changed, but they wanted a bigger reward," says Melanie Hase, a vice president at Renaissance Capital. In this case, a bigger reward translates into a discounted offer price because investors won't pay an underwriter's sticker price.

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