Initial public offerings of medical companies enjoyed a solid first half of the year, but determining whether the momentum can be sustained depends on whom you ask.

Richard Peterson, director of capital markets at Thomson Financial, says medical IPOs should remain attractive through 2007 unless the economy tanks.

Health care IPOs, especially biotech companies, "operate in a vacuum apart from the concerns of the credit arena," Peterson says. Their success depends more on the quality of their products and their collaborations with bigger companies than on trends in consumer spending and interest rates.

However, if Medicare becomes more stingy and the Food and Drug Administration becomes more restrictive, investors' interest could cool for biotech and pharmaceutical IPOs, Peterson says.

David Menlow, president of the IPO Financial Network in Millburn, N.J., doubts medical IPOs will have a strong finish to the year.

"I don't see much attraction," he says. "Investors want stronger financials than most medical stocks can deliver."

Interest-rate angst and the subprime-mortgage frenzy shouldn't affect the medical field, but "general market malaise" could dampen prospects, Menlow says.

For biotech companies, the biggest impediment to a successful IPO is the crap-shoot nature of drugs in early-stage clinical testing or the lack of marketing deals with big companies. For device-makers, "it's a case-by-case situation" in which physician acceptance and meeting demand are crucial issues, Menlow says.

Market uncertainty will certainly cause insomnia among underwriters trying to attract investors to drugmakers, device developers and health care-service providers. In July and August, 16 medical companies filed IPO statements, although only one set a price and went public.

Twenty medical firms filed IPO statements during the first half of the year, says Renaissance Capital, of Greenwich, Conn., which evaluates IPOs on its

Web site.

Will companies emulate

WuXi PharmaTech

(WX)

, whose offering price of $14 on Aug. 8 was 17% above its underwriters' initial estimate? The stock closed at $28.40 on Friday.

Or will they follow the 10 medical companies that withdrew IPOs this year, citing unfavorable market conditions? Some had been trying to go public since early 2006.

Analysts say they will have a better idea after the traditional summer lull in IPO activity. "The fourth quarter is usually strong" for medical IPOs and IPOs in general, says Melanie Hase, an analyst at Renaissance Capital.

The rest of this year "will be very difficult to predict," says Hase. "Current market conditions certainly will have an impact on medical IPOs." The drying up of biotech IPOs will be an indicator of a declining economy.

A second-half slowdown would derail the momentum of the first half when 26 health care companies went public. Comparing first-half results since 2000, this year's medical IPO output was the third highest, says Renaissance Capital, who crunched the data.

The first six months of 2007 had some familiar themes. Medical IPOs continued to hit the market at discounts to their founders' hopes, and at a rate far worse than that for the general IPO market.

To measure a discount, Renaissance Capital matches the offer price vs. the midpoint of the price range originally proposed by underwriters. For example, a stock with a $10 offer price is discounted 33% from the midpoint of an original range of $14 to $16.

Using that standard, 58% of the 26 medical IPOs were priced at a discount during the first half. Among the 88 other types of IPOs, only 22, or 25%, were priced at a discount.

Biotech IPOs are "notoriously underperformers," says Peterson of Thomson Financial. Many don't have earnings, other lack commercial products and some don't have collaboration deals with bigger companies.

Actually, a 58% rate isn't that bad for medical IPOs. As many as 70% to 80% of medical IPOs were discounted during the first half of some recent years, says Renaissance Capital.

For the first six months of 2007, nine of the 10 biggest discounted IPOs were medical companies, led by

Optimer Pharmaceuticals

(OPTR)

(a 46% discount),

Rosetta Genomics

(ROSG)

(42%) and

Oculus Innovative Sciences

(OCLS)

(39%).

Half of all non-medical IPOs were offered at a premium to underwriters' suggested retail price, but only five medical IPOs, or 19% of the group, went public at a premium. The best came from

3SBio

( SSRX) (a 23% premium),

Accuray

(ARAY) - Get Report

(20%) and

TomoTherapy

( TTPY) (19%).

However, 3SBio couldn't maintain its offering price of $16. Its stock closed at $10.31 on Friday.

Such a dropoff isn't unusual for medical IPOs whether they went public at a premium or at a discount. Seventeen medical companies that went public in the first half of 2007 were trading below their offering prices as of Aug. 27, while nine were trading above their offering prices.