At first blush, it would appear that the market for medical industry IPOs is a picture of health.

There have been almost as many biotech, pharmaceutical, medical device, equipment and health care services IPOs this year (39) as in the previous three years combined (44), according to Renaissance Capital, which tracks initial public offerings. There are more medical-oriented IPOs this year than in any other category, including technology.

But despite the strong volume, an unhealthy number of the new issues hit the market well below their original price ranges, a performance worse than that of the IPO market as a whole.

Not that it helped their after-market performance. As of Aug. 23, a majority of the health care firms that presented investors with discounted offering prices are now trading below those stripped-down prices.

IPO watchers say the underperformance is the result of several factors. For one, investment bankers rushed deals to market, especially during late 2003 and early 2004 when the health care market looked like it was making a comeback. Investors, meanwhile, were unable or unwilling to read the fine print in prospectuses, and this shows that many medical start-ups are far more risky than imagined.

"We went through such a big drought in IPOs, so when the market started to come back late last year, bankers realized the window of opportunity was opening a little," said Tom Taulli, co-founder of CurrentOfferings.com, which analyzes IPOs. "They rushed in. There were too many offerings."

His remarks are endorsed by IPO expert David Menlow, who apportioned blame equally among bankers and investors. "There was a misjudgment on the part of the brokers," said Menlow, president of IPO Financial Network. "It was almost like dominoes falling. The market was not given a chance to catch its breath."

Biotech investors, Menlow adds, don't always pay attention to the rate at which start-up companies burn through cash or the progress of clinical testing of their products.

Some analysts suggest that political concerns, most notably the presidential election, have created enough uncertainty to depress the prices of medical companies that are actively traded or companies actively seeking the public's money.

Other analysts cite general market concerns. "A lot depends on the

Nasdaq

," said John Fitzgibbon, an independent IPO analyst. "The Nasdaq had been pulling them down."

The Nasdaq Composite Index acts as a barometer for medical and technical IPOs. In the last six months, the Nasdaq Composite Index, the Amex Biotechnology Idex and the Amex Pharmaceutical Index have been declining almost in lockstep, with all of them down about 8%.

All these factors depress market prices for recently completed IPOs and depressed offering prices for hopeful IPOs. There's pressure from start-up companies that crave cash and from investment bankers who crave deals; but analysts say investors are discouraged if they look at the recent track record of medical IPOs. "I don't know if anything can get better until we get through the supply we've got now," Menlow said.

But that may not happen soon. Renaissance Capital notes that 18 more health care companies have filed their intention to go public.

Sorry Statistics

According to Renaissance Capital, 23 health care IPOs, or nearly 60%, had offering prices below their original ranges this year. For all other IPOs, that percentage was 38%.

Only three medical companies, or 8%, had offering prices above their original ranges, compared with 11% of all other IPOs.

Thirteen health care IPOs, or 33%, had offering prices that fell within the original range. Half of the other IPOs achieved that goal.

And when health care IPOs were bad, they were really bad -- at least when comparing their ability to raise money with their expectation of investor interest.

When Renaissance Capital measured offering prices vs. the midpoint of the original IPO price ranges, it found that the worst 13 cases were medical companies, with offering prices as low as 57% below original price ranges.

These results exclude all the companies whose dreams haven't been realized. Four of 18 deals postponed this year were health-care-related IPOs; five of 20 IPOs withdrawn this year are connected to health care.

And for some companies that secure IPO money, their efforts are akin to salmon swimming upstream during spawning season. Take

Xenogen

(XGEN)

, an Alameda, Calif., developer of imaging technologies that assist companies in developing drugs. With UBS Warburg as its investment banker, Xenogen announced in January 2001 that it would go public with an offering price of $9, lower than the original $10-to-$12 range. The deal was postponed a month later and withdrawn in April 2001.

Flash forward three years to April 2004, when Xenogen said it would try another IPO, this time with Thomas Weisel Partners as lead manager and CIBC World Markets as co-manager. In June, Xenogen sets a range of $9 to $11. In mid-July, the offering price went down to $8 and then $7. As of Aug. 23, the stock was trading at $6.15.

Market Trends

Renaissance Capital paints a broad picture of health care IPOs in its data base, including some firms that provide health care services. But most of these IPOs are biotech companies, pharmaceutical developers and medical equipment and device producers.

This year, those companies' after-market performance isn't positive. As of Aug 23, Renaissance Capital noted that 26 health care IPOs were trading below their offering prices, two were about even, and 11 were trading above.

And of those 26, Renaissance Capital's database shows that 16 had offering prices that had been discounted below their original price ranges.

Of course, when health care IPOs are good, they can be very good. When you compare current price with offering price, health care companies represent four of the 10 best-performing IPOs in the last 12 months. They are

Pharmion

( PHRM)(in first place with a 229% total return as of Aug. 23),

NitroMed

( NTMD) (68% total return),

Eyetech Pharmaceuticals

( EYET) (60% total return) and

Kinetic Concepts

( KCI) (60% total return).

Medical IPOs, however, also account for seven of the 25 worst-performing IPOs in the last 12 months, when comparing market price with offering price.

Myogen

( MYOG) was the fourth-worst performer, with a market price that had fallen 57% from its offering price. Other medical companies in this bottom-25 list had declines in total returns ranging from 36% to 47%.

"If you're a patient investor and understand the business, I'm sure there's value out there," said Taulli of CurrentOfferings.com. But if a recently completed IPO's stock "falls through the offering price," he added, "it takes a while to come back."