The initial public offering market for health care ended the year in much the same way it behaved throughout 2004 -- lots of deals and lots of disappointments.

The good news is that underwriters engineered 50 public offerings of medical companies in 2004, which is more than the combined total of 44 from the prior three years.

The not-so-good news is that of those 50 IPOs, underwriters cut offering prices on a whopping 60% of the issues to bring them to market, according to Greenwich, Conn.-based Renaissance Capital. For all other IPOs, the rate of discounted offerings was 29.5%.

"The only IPO market faux pas was the medical market," said David Menlow, president of IPO Financial Network in Millburn, N.J. "It was a very trying time for us to see this force-feeding of issues" by underwriters. "Investors didn't want these deals at those prices."

Many discounted deals involved biotech companies; some IPOs were discounted more than once before finding willing investors. Many of those health care IPO offering prices were more than 40% below the initial range.

Renaissance Capital calculates the discount by dividing the offering price by the midpoint in the original price range. Thus, Memory Pharmaceuticals ( MEMY), which had a $7 offering price, went public at 50% below the midpoint of its original price range of $13 to $15.

Memory was one of 30 medical IPOs that hit the market below their original price ranges. In fact, 14 of the 15 IPOs with the biggest rates of discounted offering prices were health care companies.

For medical companies, "2004 was a good year in general because they were able to raise money," said Melanie Hase, a Renaissance Capital analyst. "But the negative was that companies in early-stage testing of products were priced at a discount. It was great that investors were willing to invest, but they weren't willing to take such a risk at an early stage."

Healthy Returns
The best-performing health care IPOs in 2004
Company & Ticker Dec. 29 Closing Price Change From Offering Price
Kinetic Concepts (KCI) $75.93 +153.1%
Syneron Medical (ELOS) 30.18 151.5
Eyetech Pharmaceuticals (EYET) 45.27 115.6
Source: Renaissance Capital

Stock Market Ills
The worst-performing health care IPOs in 2004
Company & Ticker Dec. 29 Closing Price Change From Offering Price
Xcyte Therapies (XCYT) $2.66 -66.8%
Corgentech (CGTK) 8.11 -49.3
Corcept Therapeutics (CORT) 6.75 -43.8
Source: Renaissance Capital

Seventeen health care IPOs, or 34% of the total, went public at prices above their original price range. Among other IPOs, the rate of offering prices exceeding their price ranges was 13.9%.

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