Talecris' IPO May Not Be A Profitable Trade

Talecris is expected to launch a billion dollar IPO in the next few weeks between the 18-20 point range. Once public, Talecris plans to trade on Nasdaq under the symbol TLCR. My take on the IPO is a pass. I feel that between 18-20, it will not be a hugely profitable trade at that range. I see a drop during its IPO is certainly plausible. Although the company is profitable they have huge debt and growth is expected between 6-10% through 2010.

BioPharma IPO's the past few years have not done all that well. Cumberland Pharmaceuticals IPO(CPIX) went sour with an initial offering between 19-21 that is now trading at 15.33. CPIX priced an initial public offering of 5 million shares at $17 per share, $2 below its estimated price range. The last biopharma IPO was ARYx Therapeutics went public in November of 2007. They traded at 7.85 back in November 2007 and are now trading at 3.31. However, these were not IPO's of the near billion dollar calaber that this IPO will be. Many companies have withdrawn their IPO plans according to Biotech IPO News

From the recent article on BNET Talecris May Not Be the First Biotech out the IPO Window. Talecris Biotherapeutics first filed for an initial public offering of stock in June 2007, but scrapped the proposed IPO during the summer of 2008 when an Australian company, agreed to buy it for $3.1 billion. That acquisition was ousted by the Federal Trade Commission resulting in a lawsuit for antitrust infringement. Talecris made headlines almost exactly two years ago in filing to raise as much as $1 billion in an 2007 IPO. The company is not exactly a traditional biotech – as a spin-out of Bayer, it markets plasma-derived products such as immune globulin and posted revenue of $1.4 billion [in 2008]. But Talecris’ returns aren’t exactly of biotech caliber either – net income on all those sales was just $65.8 million.

VetureBeat criticized Talecris’s original filing for being “ridiculously huge” and for other reasons:

"So what we have is a profitable but relatively slow-growing biotech with huge debts, run by executives who are themselves bleeding substantial amounts of cash out of the business, which is likely to remain heavily indebted after its owners siphon off most of the proceeds from an offering roughly four times the size of any other biotech IPO in almost a decade."

Here are three links to the Talecris IPO

A nice article on the IPO from 2007:
Talecris, a Ludicrously Large IPO, and the Beginning of the End for Private Equity?

Raleigh's News and Observer wrote a recent article on the IPO:
Talecris readies IPO that could raise $894 million

The Wall Street Journal's article:
Talecris Sets IPO At 44.7M Shares, $18-$20/Share

After looking at the SEC filings it shows Talecris reported revenue of $747.4 million during the first six months of 2009. That's up 20 percent from the same period last year. Profit rose to $116.7 million, up from 19 million in 2008. The latest profit included a $75 million termination fee from CSL Ltd. of Australia, after the companies' union was canceled. So profits could grow higher.
Here are SEC filings on Talecris at Hoovers

Net income from 2006 was 87.4M
Net income from 2007 was 123.6M
Net income from 2008 was 67.8M

Total Assets from June 2009 were 1.336B. Total Liabilities were 1,374B with 1.1B in long term debt. The long term debt with Talecris' IPO makes me worry and I recommend caution on the trade. You might even consider shorting the IPO, but I really don't recommend shorts as they are mostly short term and could go sour as Talecris is profitable. Just not enough to double the stock overnight.