Immunologic Pharmaceutical Corporation

1)     Is Immunologic Pharmaceutical Corporation ready to go public at this time? Should it go public?

We believe that ImmuLogic should go public now.  While the company is still in its early stages, the conditions in the market are right for this IPO to be successful.  ImmuLogic has yet to receive patent approval and they have yet to start clinical trials.  In the past, these significant milestones in the life cycle of a firm have been signals of viability for an IPO.  However, in 1991, the market has been receptive to Biotech companies that have not yet hit these milestones.  

ImmuLogic is a strong candidate for an IPO for the following reasons.  The potential market for ImmuLogic’s products was very large (allergies and autoimmune diseases) makes it a very attractive company to invest in. The company is in need of additional capital.  While they have a strong cash balance, an influx of additional capital will allow them to continue to develop and test their drugs.  The current market sentiment is that Biotech stocks are “hot.”  While this is not a sure-fire signal to IPO, past IPOs have shown that even strong companies struggle to IPO in “cold” markets.  While ImmuLogic could wait for patent approval and Phase 1 trials, doing so may allow the market to cool and any increased valuation could be negated through lack of demand.  Additionally, ImmuLogic has a contractual agreement, and investment from Merck & Co., which will signal to the market that this company is reliable.

Life Cycle

• ImmuLogic is early stage company
• Patents have yet to be approved

• ImmuLogic is confident they will be approved

• Phase 1 clinical trials have not yet began

• Most Biotech IPO’s happen after trials have started

• Company has yet to earn a profit

IPO market

• Price of biotechnology company stocks began recovering in 1990

• Most analysts believe market is “hot” for Biotech companies but there is no guarantee on how long it will last

• Filing for biotechnology firm IPO increased. ImmuLogic’s competitors were rumored to consider going public.
• The price in 1991 might be substantially lower than an offering in 1992

2)      Discuss the incentives, and critique the reasoning of the followers players in deciding to take the firm public at this time:

(i) Malcolm Gefter, the entrepreneur;  

The three main incentives for the entrepreneur to IPO now are the need for capital, the potential to commercialize the product line, and the desire to IPO before Cytel Corp.  The need for capital and the ability to commercialize the product line are strong reasons to IPO.  ImmuLogic stands to gain a lot from issuing shares for this purpose.  They will receive cash to fund the development of their product, strengthen its balance sheet, and their ability to negotiate with pharmaceutical companies will be stronger.