Tranzyme’s IPO: Not an April Fools joke

Posted April 2nd, 2011 in Exits IPOs M&As

Tranzyme just got public and will trade on Nasdaq under the ticker symbol TZYM on Monday.

Unfortunately the pricing wasn’t an April Fools joke.  They had to sell 53% of the company in the IPO in order to raise under $50M in new capital.  They had hoped to price 3x higher than that and raise 20% more.  But such is the IPO market today.

According to the amended S1, existing private shares had an average price per share of $7.17, so are now sitting just above 50 cents on the dollar at the $4.00 offering price.  Challenging for sure.  Furthermore, my guess is that the existing investors had to purchase more than half the raise to get this company “public”, but that’s purely speculation.

For a little background, Tranzyme is a late clinical stage company with two ghrelin agonist programs the treatment of predominantly upper GI motility disorders.  Their lead program, ulimorelin, is an IV product that’s been in six clinical trials since 2006; three in Phase 1 healthy volunteers and three in patient studies.   In Phase 2, it showed statistically significant 24-hour improved acceleration of GI recovery in post-operative ileus.

Tranzyme was founded in 1998, raised most of its capital in 2005 and 2007.  To date, according to the amended S1, it has raised $80-90M in equity and debt capital prior to the IPO.  The three largest venture investors are H.I.G., Quaker, and Thomas McNerney.

They also raised nearly $20M in upfronts and related payments from their pharma collaborations, in particular with Norgine for rights to ulimorelin in Europe and Africa.  Norgine also helps fund the Phase 3 program.

While the pricing is certainly bad news, it might have been better than trying to raise $50M in the private market today.  That tradeoff must have been an interesting calculus in the Board room.  Sadly, however, the momentum of the IPO pricing process often takes a life of its own and getting it over with at any price is often viewed as less painful than pulling out of the process and staying private.

The good news for Tranzyme is that this offering probably provides them with enough new funding to take the lead program through the two ongoing Phase 3 trials of 300 patients each, and positive outcomes there would certainly cause the stock to appreciate.   Good luck to them.

For more details, check out the revised S1 filed yesterday.

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