Potential Billion-Dollar IPO Brewing in Health Care

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As we've mentioned before, we think health care is an area that has the potential to generate a few new IPOs in the coming months. With that in mind, we are intrigued by Talecris Biotherapeutics, which originally filed an amended S-1 in July 2008 and appears to be readying itself for a potential public sale once again. As for the size of the offering? The firm will try to raise a cool billion dollars. Morningstar equity analyst Meera Venu gives her initial take on this high-interest offering:

"Talecris Biotherapeutics manufactures and markets plasma-derived protein therapies for patients with life-threatening disorders. The firm's flagship product, an intravenous immune globulin (IVIG) called Gamunex, treats immune system deficiencies and touts several distinctive features within its therapy class. Gamunex was the first ready-to-use liquid IVIG on the market and is currently the only product that carries an indication for CIDP, a chronic neurological disorder. These characteristics have helped Gamunex gain a 30% market share and win an extended exclusivity period. Gamunex accounts for half of the firm's revenues. Talecris also markets Prolastin, an A1 proteinase inhibitor (A1PI) that makes up a quarter of the firm's sales. With Prolastin, Talecris once again was the first to market and has since captured about two-thirds of the potential domestic market.

"Overall, we think Talecris has targeted a lucrative market with favorable growth dynamics. The large capital equipment outlays and high level of manufacturing expertise erect high barriers for smaller firms trying to enter the market. Patients with immune disorders need lifelong therapy, and the Food and Drug Administration has granted long orphan drug exclusivity periods to encourage drug development in this space. Also, Talecris estimates that the worldwide market for these drugs has grown to $7 billion in the past few years due to expanded indications for plasma therapy and higher rates of diagnosis. On top of this, Talecris has managed to increase prices on Gamunex. These growth drivers have led to compound annual revenue growth of 9% over the past three years to revenues of $1.4 billion in 2008.

"While Talecris may not have to worry too much about smaller players, it will have to contend with industry giant  Baxter International (BAX). Baxter's blockbuster drug Advate has dominated the hemophilia market due to its recombinant DNA formulation, which eliminates the risk of blood-borne infection. If Baxter or another firm can make a similar advance in other immunotherapies or find ways to make existing therapies more potent or convenient, that competitor could cut into Talecris' market share. However, these competitive initiatives remain in relatively early development stages, if at all, which should give Talecris time to advance its own pipeline and fend off new product launches.

"Also internally, Talecris needs to address its high manufacturing costs and pricing pressure. The firm has brought plasma collection in-house, which can reduce its manufacturing costs, but the company will need to increase production to efficient volumes. We also expect prices to fall as Medicare has reduced reimbursement rates for IVIG drugs. So despite what we view as a relatively strong position in its therapy niches, we think Talecris faces some risks that threaten future sales and profit levels."