Louisville drug firm plans to go public

Replidyne to use cash to prepare new antibiotic for launch

By Rachel Brand, Rocky Mountain News

April 7, 2006

A Colorado drug company plans to go public to raise money for its first commercial product launch.

Louisville-based Replidyne filed with the U.S. Securities and Exchange Commission on Wednesday saying it plans to raise $100 million. The figure is a placeholder: Neither the deal's value nor the number of shares has been set.

Should the 61-person firm complete its offering, it will be the third Colorado company to go public in 2006, after Crocs and Chipotle Mexican Grill. Local Matters has filed with the SEC saying it intends to go public as well.

Five-year-old Replidyne develops antibiotics, and its first medication, Orapem, is under review by the U.S. Food and Drug Administration. The drug could treat many infections, including pneumonia and tonsillitis.

Replidyne inked a partnership with drug giant Forest Labs earlier this year.

"Because they have this collaboration with a major company that is well-funded and profitable, that's a definite plus for the company," said Francis Gaskins, president of IPOdesktop.com. "This has the earmarks of an interesting IPO."

The pharmaceutical company intends to use the offering's proceeds to pay for clinical trials, for future payments to licensors and to prepare for the potential commercial launch of Orapem.

It has applied for the symbol RDYN on the Nasdaq.

Replidyne was founded in 2001 as a University of Colorado spinoff with the aim of developing antibiotics through original research. Its homegrown research program sought to interfere with the DNA replication process that allows bacteria to grow and spread.

Since antibiotics are prescribed for short periods of time, they didn't seem to be attractive investments to big drug companies. Those larger firms set their sights on inventing drugs for chronic conditions, creating lifetime "subscription" medications that can bring in ongoing revenue.

But as a small company with lower overhead, Replidyne saw the economic potential of antibiotics.

According to IMS Health, the American market for antibiotics is $8.5 billion, and the worldwide market is $25 billion.

In 2004, Replidyne licensed the rights to faropenem daloxate, the chemical name for Orapem, in every country but Japan.

The compound had already undergone extensive clinical tests before Replidyne licensed it. Replidyne completed the required U.S. trials in the next two years and submitted its data to the FDA in December.

Replidyne has described Orapem as a "unique anti-microbial agent" that has shown promise against some antibiotic-resistant bacteria. Similar drugs are delivered intravenously, but there is no U.S. oral antibiotic like it.

New York-based Forest Labs gave Replidyne a vote of confidence in February when it agreed to license and sell the drug.

The partnership has netted Replidyne $60 million and could earn it another $190 million in the future. Replidyne will also receive royalty payments if Orapem gets FDA approval and Forest successfully sells the medicine as a remedy for pneumonia, sinus infections and bronchitis.

Replidyne has retained the right to sell Orapem for children's ear infections and tonsillitis. The company said it might build a specialty sales force around the pediatric market, or the market of ear, nose and throat doctors.

Replidyne has raised $181.5 million through private investment, licensing fees and milestone payments.

Early investors include the Perseus-Soros Biopharmaceutical Fund, Morgenthaler Ventures and Duquesne Capital Management.

"They've got some very nice venture partners, very solid high visibility investors," said Ben Holmes, publisher of morningnotes.com, a research source for institutional investors.

2006 Colorado IPOs

• Chipotle Mexican Grill: Went public Jan. 26 at $22 per share, raising about $200 million. It doubled in price its first day of trading, becoming the best-performing IPO in the nation in the first quarter. Current company value: $1.8 billion.

• Crocs: Went public Feb. 8 at $21 per share, raising about $104 million. It jumped more than 33 percent its first day but has since traded lower. Current company value: $1 billion.

• Local Matters: The Internet search technology company filed March 22 to raise $57 million.