Worst IPOs of 2009: Biggest stock flops

The IPO market spiked at the end of the year, but not all of the deals were successful.

By TheStreet Staff Dec 15, 2009 4:39PM

TheStreetBy Jeanine Poggi, TheStreet


Initial public offerings surged in the second half of 2009, but not all of the deals were lucrative.


Some 59 companies have come to market in 2009, with only 14 during the first six months. All but two of the 10 worst-performing IPOs of the year debuted in the second half. On the flip side, six of the 10 best IPOs began trading during the first half. Here are some of the weakest new issues:


NIVS IntelliMedia Technology (NIV):  While China had some of the most successful IPOs of 2009, it also had the worst.


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NIVS Intellimedia makes audio and video consumer products, such as LCD televisions and DVD players. The company came to market on March 13 at $3.50 a share. Since then, the stock has sank 37% to close on Dec. 8 at $2.19.


Third-quarter profit grew 22% to $5.8 million, or 14 cents a share, compared with $4.8 million, or 13 cents, in the year-ago period. Revenue jumped 6% to $52.4 million from $49.4 million in the third quarter last year.


Chemspec International (CPC):  Another Chinese company, Chemspec International was the No. 2 worst-performing deal of the year.


As the country's largest producer of fluorinated specialty chemicals, which as used to make liquid crystal displays and other electronics products, Chemspec priced its IPO of 8 million American depositary receipts at $9. Each ADR represents 60 ordinary shares of the company. Since it began trading on June 24, the stock has tumbled 34% and closed on Dec. 8 at $5.96.


"Growing competition, soft-end markets, material accounting weakness and obnoxious related-party transactions are just a few of the reasons we'd cite in urging prospective investors to steer clear of this offering," Morningstar (MORN) wrote in a note prior to the offering.


In 2008 Chemspec reported sales of $138 million. While the company has some lofty goals, such as doubling its total nameplate capacity, many experts think management is being too ambitious.


Omeros (OMER): Omeros is hoping to win in the marketplace by mixing a cocktail of existing drugs to preemptively curb inflammation during surgery.


"Rather than developing novel therapies of its own, Omeros simply repackages over-the-counter and prescription generic medications for use in its drug delivery system," Morningstar wrote in a note. "And without a novel product on its hands or a critical unmet need to address, surgeons could be hesitant to replace their current treatment practices with Omeros' pricier offerings."


Omeros began trading on Oct. 8, pricing its 6.82 million shares at $10. But concerns about the company’s long-term potential have caused the shares to drop 30% to $7.01 on Dec. 8. In the third quarter, Omeros reported a loss of $3.9 million, or $1.34, compared to a loss of $7.4 million or $2.54, in the year-earlier quarter.


Vitacost.com (VITC): Vitacost.com, an online retailer that sells health and wellness products, priced 11 million shares of common stock at $12 each, in the middle of its expected range. Since it began trading on Sept. 24, the stock has tumbled 29% to $8.50 on Dec. 8.


In the past four years, Vitacost's sales have grown by an annual average of 48%, according to Morningstar, while its operating margin widened to 13% in the first quarter of 2008 from 2% a year earlier.


Still, investors worry about Vitascost's long-term prospects. "We think larger companies like Amazon (AMZN), Drugstore.com (DSCM) and GNC can use their scale advantages to offer lower prices in the long run," Morningstar wrote in a note.


Cumberland Pharmaceuticals (CPIX): Investors are finding limited potential in Cumberland. The company went public on Aug. 11, raising $85 million with an IPO price of $17 a share, but since then the stock has fallen 22% to $13.25 on Dec. 8.


The small drugmaker only produces three drugs: Acetadote, an antidote for overdoses of acetaminophen; Kristalose, a powder laxative; and the recently approved Caldolor, an intravenous form of ibuprofen. Kristalose and Acetadote have just $45 million in annual revenue combined, according to Morningstar. So Cumberland is relying to Caldolor to boost profits.


So far, it's working. In the third quarter, profit rose 6% to $1.3 million, or 7 cents, from $1.2 million, or 7 cents in the year-ago period. Revenue climbed 58% to $13.6 million, driven by Caldolor sales, the company said in a statement.


Earlier this week, Cumberland said it signed a licensing deal with DB Pharm Korea to sell Caldolor in South Korea.


Still, Cumberland does minimal research, so growth is predominantly dependent on acquisitions, with about $70 million of unallocated IPO proceeds, according to Morningstar.


"There couldn't be a worse time for a small drug company to launch an acquisition program," Morningstar wrote in a note. "Most big and specialty pharma companies we cover are desperate to rebuild sparse pipelines and have access to pile of cash. It's highly unlikely that Cumberland, with its limited resources, will attract a sizable or promising opportunity for a reasonable price."


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