Three 'Busted' Biotech IPOs: Amicus, Jazz, Sirtris

Includes: FOLD, JAZZ, SIRT
by: Michael Shulman

Not so fast – why busted IPOs? Biotech IPOs continue apace, but there is a continuing drift by investors from the speculative to the more conservative. These three companies went public on the strength of their investment banks as much as their own prospects – and perhaps for that reason the stocks have all drifted down and are now bouncing off bottoms. So for technical reasons (not to mention that they may have bright prospects), it is time for a look.

Amicus Therapeutics (NASDAQ:FOLD): No, this is not a company making a drug to help poker plays or laundromat employees. Amicus Therapeutics has created what it calls pharmacological chaperones targeted at rare, genetic diseases. Their drugs aim to fix proteins that do not work properly due to a genetic mutation. The first target is something called lysosomal storage disorders, and its most advanced compound is Amigal, currently in Phase II trials for the the treatment of Fabry disease, a rare disorder that causes kidney failure, heart problems and cardiac abnormalities.

The company went public at the end of May, came out just above $14, popped to near $17 and is now trading just above $12. This is a very-early-stage company and came out, in my opinion, because of the troika of investment banks making fees – excuse me – finding gems for patient investors: Morgan Stanley, Merrill Lynch, and JP Morgan.

Jazz Pharmaceuticals (NASDAQ:JAZZ): This company certainly has jazz – and a big pipeline – all related to nervous systems and psychiatric disorders, historically a tough marketplace for smallish companies. It has too many products in the pipeline and in trial to discuss at length, but the ones closest to commercialization may be of real interest to the psychiatric community – including treatments for depression (another serotonin inhibitor).

JAZZ's potential products are targeting epilepsy and bipolar disorder, a drug for that new disease that is all the rage, restless leg syndrome and for the treatment of panic attacks that come with panic disorder. Its edge or differentiator is the use of proprietary technology to create extended-release formulations (long lasting) of known and effective chemical compounds.

The company raised about a $100 million the first day of June, the IPO being priced at $18, way down from initial expectations of $26-$28 and now trading at $16. Another set of blue chip underwriters could not keep the price up -- Morgan Stanley, Lehman Brothers, Credit Suisse and, oh yes, Natexis Bleichroeder.

Sirtris Pharmaceuticals (SIRT): This is the company that is going to make us live longer by working with the key ingredient in red wine – resveratrol – rather than have us all become drunk and fat trying to live longer. The world’s leading scientist (and a highly successful self promoter) leads the company and he has a sound business model. The company is targeting Type 2 diabetes with its first drug.

Why not aging? Because the FDA does not recognize aging as a disease (yeah!) and you cannot get an FDA approval and validation for a treatment for a non-disease. I have written about resveratrol a couple of times in my newsletter. It is a fascinating concept and this makes SIRT similar to many of the biotechs that went public in the late '80s and early '90s based on the resume of the founder and the power of the underlying scientific concept -- rather than something more concrete.

The company went public near its current price, $11, popped to above $13 and is now trading around $11, having bounced off a bottom just under $10. The company was brought public by J.P. Morgan, CIBC, Piper Jaffray, JMP Securities and Rodman & Renshaw. The diversity of these underwriters may explain why the stock has held up better than its brethren going public at roughly the same time.

I am looking at all three right now – let me know what you think – these may only be a trade, not an investment, but it is hard to imagine all three will stay below or at their IPO price for too long.