Market Conditions Sour IPO Prospects For Some Firms – MDMA Panelists

July 23, 2008 - The Gray Sheet

Small medical device companies seeking new sources of funding are being cautioned by venture capitalist Guy Nohra, co-founder of Alta Partners, that now is a tough time to go public.

For "small concept" companies, a successful initial public offering is "just not going to happen" in the current weak stock market environment, Nohra suggested at the Medical Device Manufacturers Association meeting in Washington, D.C., June 13.

Nohra was among participants of an MDMA panel exploring ways to successfully monetize a med-tech start-up.

At least three medical device firms have already cancelled IPO plans this year, including Broncus Technologies, Emphasys Medical and Transoma Medical, each citing adverse market conditions.

However, AGA Medical, a more established device firm that has $147 million in sales and is profitable, just filed for a planned $200 million IPO on June 20.

Other device firms that have announced plans to go public this year, including Salient Surgical Technologies, Alma Lasers and Cardiovascular Systems Inc., continue to have initial IPO prospectuses on file with the Securities and Exchange Commission.

Meanwhile, San Diego-based CardioNet and Sunrise, Fla.-based Bioheart succeeded in taking their companies public earlier this year.

At the MDMA meeting, Nohra singled out non-invasive patient monitoring device maker Masimo, which went public last August, as "an exception." The firm has seen its stock price roughly double (from $17 at the time of its IPO), largely despite market conditions.

Masimo, which was 18 years old at the time it went public, is now trading at roughly $34 per share (1"The Gray Sheet" Aug. 13, 2007, p. 9).

Chairman and CEO Joe Kiani, sharing the pros and cons of going public at the MDMA meeting, cautioned small firms not to go public too early. When companies have good things ahead of them, "that's a good time to go public," he said.

However, it can cost small public firms $3 million a year just to pay the required auditors and lawyers. In addition, a CEO's focus tends to shift after a company goes public - "Your job used to be about making good products, but now it's about making money," Kiani concluded.