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How is the economic crisis affecting tech companies?
2008 was the year of withdrawals from the initial public stock offering, with eight New England tech companies pulling their plans to go public, up from as little as one in 2007.
Two companies that withdrew their IPO bids recently were Woburn-based biotech company BioTrove Inc. and Andover-based medical device maker TransMedics Inc., but biotechs weren’t the only ones: Online marketplace NameMedia Inc., based in Waltham, pulled its plans last month, and NitroSecurity Inc., based in Portsmouth, N.H., a provider of security solutions, pulled its plans in the spring.
Compare that to just a few tech companies that filed securities-withdrawal plans in 2007, and just one — Wakefield medical software maker Picis Inc. — that specifically nixed its IPO plans that year.
“More companies are pulling out their IPO registrations in this environment,” said William Whelan, co-chair of the life sciences practice at Boston-based law firm Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC. These companies doubt the IPO window is going to open anytime soon and there’s no reason to maintain a state of readiness. And SEC rules make it difficult to raise money in a private transaction, Whelan pointed out, while a company still has a securities registration statement on file.
“In short, (withdrawal) is a wise strategy as long as alternatives have been explored and are available,” said Jonathan Gertler, managing director, and head of biopharma investment banking at Leerink Swann LLC, a Boston-based investment bank. Those alternatives include pursuing acquisitions, partnerships and royalty financing, said Gertler.
In itself, an IPO withdrawal is far from the road’s end for a company, said Albert Luderer, president and CEO of BioTrove. “Like most companies, when preparing to go public we had to build a credible five-year plan. Our plans really haven’t altered,” he said.
BioTrove finished 2008 by doubling its top line, as it had planned, Luderer said. That was the third year of consecutive growth, and the company plans to double again this year. Fortunately, the investors in BioTrove have also been “tremendously supportive,” and the company has enough cash to make it through the year and, hopefully, break even in 2009 and hit profitability in 2010, said Luderer.
“We’re off to a great start,” he said. “We’re exceeding expectations in the majority of our sales segments. What has changed is how well capitalized we’d be. We hoped we’d have about $75 million raised and would probably have used that to make more investments than we could have done being venture capital-backed.” It also prevents the company from moving as strongly as it wanted into molecular diagnostic technologies, he acknowledged.
But going public can require many painful changes for a company — in addition to the considerable regulatory and reporting burdens, say executives. BioTrove already had strong governance and adequate financial accounting processes in place before it ever filed the S-1, said Luderer. However, he noted companies that have prepared for an IPO incur several millions of dollars’ worth of legal, accounting and other costs.
“That’s a huge effort to undergo and another barrier for companies that want to go public,” noted John Hallock, spokesman for Watertown-based Athenahealth Inc., which went public in September 2007. “We put a lot of energy into being public years in advance.”
An IPO can boost a company’s fortunes. “We really picked the right time,” Hallock said. “The company got what it wanted and the investors got what they wanted, and the company has a greater financial standing now.”
Despite what it called a successful IPO, Athenahealth, which provides web-based software to support physician practices, withdrew a follow-on offering in February 2008, citing the drop in stock prices.
Also, not being public has the advantage of allowing them “to focus on longer term objectives and not be too focused on quarterly results,” noted Luderer. “Our planning must, and in fact does, consider an IPO nuclear winter and prolonged recession up to about two years. BioTrove will keep its IPO options open.”
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