Investors take AGA Medical's pulse ahead of IPO

By MARLEY SEAMAN

posted: 37 DAYS 8 HOURS AGO

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NEW YORK -Investors appear cautious ahead of AGA Medical Holdings Inc.'s initial public offering scheduled for Wednesday, as the potential blockbuster heart devices the company is developing are several years from reaching the market.

An SEC filing from Oct. 13 showed the company priced its stock at $19 to $21 per share, but on Tuesday, it said it expected a price of $15 to $16 per share.

The Minneapolis-based company makes devices used to repair structural heart defects and treat vascular diseases. In a filing with the Securities and Exchange Commission, AGA said its products are mostly used to treat children, but the company touted three products that it said could address markets worth more than $1 billion by treating strokes or aneurysms caused by different defects.

Testing of those products is likely to take two or three years, and AGA said reviews by the Food and Drug Administration could also take years.

Analyst Paul Bard of Greenwich, Conn.-based Renaissance Capital said investors were hesitant to pay now for products that won't be on the market any time soon, and AGA shares might trade below the revised range.

"Commercial launch is still far off and uncertain, and I think investors are wary of paying up for that kind of uncertainty," said Bard. That is especially true in a weak market for IPOs, he added.

The company is testing its Amplatzer device to see if it can reduce strokes caused by patent foramen ovale, a hole in the heart. Studies have linked PFO to stroke as well as migraine. It is also developing a vascular graft to treat aneurysms, and hopes to market another Amplatzer product as way to reduce stroke in patients with irregular heartbeats.

AGA has been spending more money on research and testing over the last few years. With its main business holding steady, that has lead to smaller adjusted profits. Bard said the core business is "highly profitable" but probably fairly valued at $15 to $16 per share.

The IPO includes a maximum of 15.8 million shares. Just under 7 million are being sold by AGA itself, and the financial institutions underwriting the offer will have an option to buy another 2.1 million shares. If the shares are priced at $15.50 and all options are exercised, the company will have raised $126.2 million after deducting expenses.

The remaining 6.8 million shares are being sold by former president and CEO Franck Gougeon, and funds Gougeon controls. On Tuesday, the company adjusted the specifics of its offering so Gougeon's funds will sell more shares to make up for the lower price, and AGA itself will sell fewer shares.

If the offering had priced at $20 per share, AGA would have raised as much as $192.7 million. It said the proceeds will be used to pay back debt, prepay senior notes due in 2012, and pay dividends on preferred stock.

The stock will trade under the symbol "AGAM."

The overall IPO market has relaxed slightly in recent months, and there have been almost as many initial public offerings in 2009 as there were in all of 2008. But investors are still skeptical.

"Appetite for risk is increased slightly and broadened, but the pendulum hasn't swung completely to the other side," Bard said.

2009-10-20 15:50:34