jazz-pharma-logo.jpgJazz Pharmaceuticals, a Palo Alto, Calif., outfit that licenses and acquires drugs from other companies, said it hopes to raise up to $179.4 million in a 6.9 million share offering — all based on a stable of unexciting drug retreads.

According to its SEC filing, Jazz now plans to price its shares between $24 and $26 apiece, for gross proceeds of between $165.6 million and $179.4 million. When it first announced its IPO plans in March, the company said it planned to raise $172.5 million with the offering.

That’s a princely sum for a company that has long personified the “specialty pharmaceuticals” fad that swept biotech venture capital earlier this decade. Companies like Jazz don’t discover drugs on their own; instead, they acquire rights to unwanted experimental drugs, generally from Big Pharma companies who figure the potential market isn’t worth the trouble of tying up capital and talent in development. In other words, specialty pharmas are a kind of arbitrage play, one that looks for profit between the mismatched expectations of Big Pharma managers and those of venture investors.

Even better so far as the latter were concerned, such in-licensed drug candidates could theoretically win FDA approval much faster than ones developed from scratch. In turn, that meant VCs could hope to cash out their investments much earlier — perhaps in as little as four or five years, compared to ten or more for an investment in a traditional early-stage biotech.

Few have played the specialty-pharma game better than Jazz. Founded in 2003 by former executives of Alza, which Johnson & Johnson had acquired for $10.5 billion two years earlier, Jazz was perfectly poised to attract venture capitalists eager for quick “exits” from their venture investments in the aftermath of the disastrous 1999-2000 biotech stock bubble. And flock they did for Jazz’s second funding round, when the company raised an eye-popping $250 million — a sum so large it merited its own NYT story. Even then, however, skeptics were beginning to wonder if the giant financing suggested that the specialty-pharma boomlet was about to play out.

In mid-2005, Jazz paid $123 million in cash to acquire Orphan Pharmaceuticals, an unprofitable, publicly traded specialty pharma with three marketed drugs for sleep disorders and other neurological problems. Total sales of those three treatments — still the only products Jazz has to sell — amounted to $42.9 million in 2006. Jazz, meanwhile, posted a $78 million operating loss last year, and continues to burn cash at a prodigious rate — $19.4 million in the first quarter alone. As of March 31, Jazz had racked up cumulative net losses of $213.4 million.

The company also executed a 1-for-11.06701 reverse stock split two days ago, presumably to avoid pricing its shares so low that institutional investors couldn’t participate in the offering.

Jazz, of course, has big plans for its existing and future drugs. It is trying to extend the use of its narcolepsy drug Xyrem into fibromyalgia and unspecified movement disorders. In January it struck a deal with Solvay Pharmaceuticals to market a time-release version of the antidepressant Luvox (fluvoxamine) in the U.S. Solvay withdrew Luvox from the market in 2002, two years after generic versions entered the market. Other drugs in the Jazz pipeline include new formulations of traditional anticonvulsant and anti-anxiety drugs.

In other words, Jazz offers very little to quicken the pulse of anyone looking for fancy new drugs that address serious unmet medical needs — just a lot of nose-to-the-grindstone, me-too style follow-ons. Maybe there really is a huge business to be made from such humdrum drugs, one that would justify the enormous piles of investor cash the business is plowing through. And maybe a stolid, cash-generating specialty pharma like Jazz is just what finicky and risk-averse pharma/biotech IPO investors are looking for. If so, it sure seems like a dispiriting way to take the “venture” out of venture investing.