VentureBeat

updated

AthenaHealth, a company that sells software to doctors to manage their billing and other office tasks, is just the latest company to appear cheated by the IPO process: It’s bankers helped it price the stock at $18, but by the end of the first day of trading, it was at $35.50.

That suggests the Watertown, Mass company could have sold its shares for much more, say $25 or $30, and still had decent demand from investors.

Here’s the quick math: It sold 6.19 million shares in the IPO, so had it judged the market more accurately, it could have brought in an extra $72 million had its banks helped it price a little higher. For a company losing $10 million a year, and with a feather-weight revenue of $80 million (see its prospectus for more), that’s a big deal.

Now, predicting a market price is difficult to do. And the responsibility for the pricing decision remains the company’s. But the banks, in this case Goldman Sachs and Merrill Lynch, have huge sway in the process, and have an interest in keeping a price artificially low. They get to turn around and sell the low stock to their favorite clients, giving them a huge pop for a profit — ensuring those clients will come back and do business with the banks.

This is just the latest sign that companies should look more closely at the OpenIPO auction process, pioneered by WR Hambrecht, which instead lets the market decide on the company’s price before the IPO. By opening the process to auction, it can factor in other demand trends (Dan Primack has more on what these may have been, in Athena’s case) that a closed-book ibank process can’t. The OpenIPO is what the stubbornly independently minded co-founders at Google did, after consulting with smart minds, but few others seem to have the guts.

AthenaHealth company had raised $50 million in funding from Oak Investment Partners, Draper Fisher Jurvetson, Venrock, and Cardinal Partners. The venture firms should be taking a closer look at the IPO process too.

Correction: An earlier version of this story incorrectly said the venture firms had sold part of their holdings in the IPO. They did not.

Featured companies: Allergan, Athenahealth, Atria Genetics, Celera, Esprit Pharmaceuticals, Vida Diagnostics

(NOTE: This item was posted on Friday, 9/21/07. I’ve backdated its timestamp to preserve the chronological order of the briefings.)

Celera buys Atria Genetics for $33M — Rockville, Md.-based Celera, the onetime genomics pioneer still working to turn itself into a diagnostics company, agreed to pay $33 million to acquire Atria Genetics of South San Francisco, Calif. (Atria doesn’t seem to have a Web site, and if they’ve taken venture funding, I haven’t seen any signs of it.) Atria makes immune-system tests — formally called human-leukocyte antigen (HLA) tests — designed to ensure matches between bone-marrow or organ donors and recipients.

Celera is certainly starting to throw cash around, as this deal is its second acquisition in the past few weeks. Earlier this month, the company bought Berkeley HeartLab, a Burlingame, Calif., maker of cardiovascular diagnostics, for $195 million. Our coverage is in the first item here.

Allergan buys bladder-drug maker Esprit for $370M — Publicly traded Allergan agreed to pay $370 million for Esprit Pharma, an East Brunswick, N.J., specialty pharmaceutical company. Esprit makes Sanctura, a drug for treating overactive bladder — yes, it’s probably as unpleasant as it sounds — that Allergan believes could generate sales of up to $400 million a year. Allergan is also testing its face-paralyzing anti-wrinkle drug Botox against overactive bladder.

Reuters (via the NYT) has more.

Athenahealth prices IPO, soars on first trading day — Athenahealth, a provider of software and services for physicians’ offices, priced its IPO above its expected range and then saw its shares soar during its first day of trading. The Watertown, Mass., company priced its shares at $18 apiece, well above the $14 to $16 range it had previously established. Enthusiastic traders pushed the shares up to $38.69 before closing at $35.50. Athenahealth raised as much as $130 million and now has a market capitalization of $1.1 billion.

UPDATE: Matt Marshall points out at VentureBeat that the company’s underwriters effectively took it to the cleaners by leaving so much money on the table. I’m sympathetic to that point of view and think that auction-based IPOs are much more efficient traditional “indication of interest” IPOs, although it’s also the case that this kind of big bounce can also spark investor enthusiasm for future offerings. I’ve noted before, for instance, that biotech investors would probably welcome some similar excitement amid their recent humdrum IPOs.

Vida raises $811K for lung-imaging system — Vida Diagnostics, an Iowa City, Iowa, developer of diagostic imaging systems for treating emphysema, raised $811,000 in a first funding round to push its first product past approval, VentureWire reports (subscription required). Corridor Management of Cedar Rapids, Iowa, led the round.

Athenahealth, a Watertown, Mass., maker of health IT systems for billing and management of electronic health records, filed to raise as much as $86.25 million in an initial offering. The company’s SEC filing is here.

Athenahealth’s systems work as Web-based services, a strategy designed to take advantage of the Internet’s flexibility and to make it easier for doctors to digitize their practices without making a huge amount of up-front investment. That said, Athenahealth’s business is still a fledgling one; last year, it lost $9.2 million on revenues of $70.7 million.