It's been a tough couple of days for newly public

DOV Pharmaceutical


and its lead underwriters, CIBC World Markets and Lehman Brothers.

On Wednesday, additional shareholders joined a lawsuit that alleges DOV and its underwriters failed to inform investors in a timely manner about a revision of its 1999 financial results concerning a joint venture with




DOV's amendments to its prospectus -- which were made the same day the stock priced -- revised the company's 1999 financial results to account for the venture with Elan, an Irish biotech firm that has also been criticized for its revenue accounting.

"Purchasers of the shares in the IPO or in the aftermarket were not promptly made aware of the restatement, and as a result, suffered losses on the first day of trading or in the aftermarket," said Stephen Oestreich, of Slotnick, Shapiro & Crocker, one of the law firms representing investors, in a statement.

In the Tank

In its first day of trading, shares of DOV Pharmaceutical fell from $13 to $8.70. The 33% drop represents the worst performance for an initial public offering debut in more than two years. On Wednesday the stock was up 40 cents, or 5.3%, at $7.90, but still well below the offering price.

The accounting change came about after the

Securities and Exchange Commission

suggested DOV Pharmaceutical change the way it booked the initial funding of its joint venture with Elan. A one-time adjustment ended up widening DOV's loss from the venture to $11.9 million from $10.2 million.

DOV Pharmaceutical did not return a call for comment.

"DOV must have convinced the underwriters that the changes were immaterial," said Kyle Huske, a market analyst at "Otherwise, you'd expect them to hold up the deal and give it more time."

The Waste Land

In the aftermath of the market's swoon last year, investment banks have been starved for deals. In the first quarter this year, there were 16 IPOs, compared with 18 in 2001 and 135 in 2000.

"With virtually no activity, firms are hurting for fees," said Marc Baum, managing director of the Seaport Group. "At market bottoms and tops, people do stuff that they would not otherwise do." (CIBC World Markets did not return a call for comment, and Lehman Brothers declined to comment.)

DOV is years away from turning a profit. In 2001 it had a loss of $5.64 million. And out of the five drugs in its pipeline, only one of them has advanced as far as phase III in clinical trials.

"If DOV were a company with profits, investors would have been more forgiving," said Huske. "But this is not a company that is profitable. And it doesn't expect to be profitable anytime soon."

Analysts said other companies will be careful to give investors more time to digest new information. "The taint of DOV Pharmaceutical's initial public offering will have an effect on pharmaceutical companies that are planning to go public," said Huske, "especially ones that are not profitable."

One drug company, Aderis Pharmaceuticals, has already postponed its public market debut in the wake of the DOV controversy.