Investors looking for contradictions easily found them in the initial public offerings for medical companies last year. And there's a good chance they'll see a repeat performance this year, meaning plentiful offerings, many withdrawn IPOs and numerous deals in which underwriters have to knock down the offering prices. In 2005, for the second consecutive year, medical IPOs outnumbered any other category, according to Renaissance Capital, a Greenwich, Conn., firm that provides research on new offerings. Last year, there were 34 health-care IPOs among the 194 offerings. Most were drug, biotech or medical-device companies, but Renaissance Capital's health-care category also includes services companies. The health-care field also produced a sickening number of withdrawn IPOs, or deals that were pulled from the market. Fourteen of 45 IPOs withdrawn last year had a medical connection. Medical IPO hopefuls and their underwriters "have to understand that investors are very picky," says Melanie Hase, an analyst at Renaissance Capital. "Investors are wary because many small companies fail." Another measurement of investor wariness is the final offering price vs. the initial offering price. Using this yardstick, medical IPOs have done poorly.
Last year, 24 of the successful health-care IPOs -- 70% of the total -- had final offering prices below their underwriters' original efforts. Among nonmedical IPOs, 36 companies, or 23% of the rest of the new offerings, went public at prices beneath their investment bankers' initial proposals. In 2004 , three-fifths of medical IPOs were discounted vs. 30% of the nonmedical IPOs. Renaissance Capital measures the amount of the discount by comparing the midpoint of an IPO's original price range to the final offering price. For example, if the initial range is $9 to $11 and the final price is $8, Renaissance says the IPO was discounted 20%, or $10 minus $8.