AGA Medical Edges Up in Nasdaq Debut

NEW YORK (Reuters) – AGA Medical Holdings Inc., a maker of devices for heart defects and blood vessel diseases, became the latest IPO to disappoint in its debut, rising only 0.7 percent in its first day of trade.

AGA shares started trading at $14.50 on the Nasdaq, rose as much as 2.4 percent to $14.85 and ended 10 cents higher for the day.

Historically, U.S. IPO stocks have on average risen 10 to 12 percent in their first day, but AGA Medical became the 11th IPO out of 15 since mid-September to have an sub-par first-day, which came on the heels of the IPO pricing below expectations on Tuesday evening.

AGA priced shares at $14.50, below the expected price range of $15 to $16 a share, which it had lowered earlier Tuesday from $19 to $21.

The company, whose largest shareholder is private equity firm Welsh, Carson, Anderson & Stowe LP, sold 13.75 million shares and raised $199.4 million. As recently as Monday it had estimated it would raise $275 million.

Despite the disappointing pricing, the shares stood their ground in their debut because of company’s profit margins and pipeline of products, an analyst said.

“The market opportunity for their pipeline products is about $6 billion and they are highly profitable,” said Matt Therian, an analyst with Connecticut-based investment firm Renaissance Capital.

The downward pressure during the pricing came partly from uncertainty over how long regulatory approval for new products and for new applications for existing products could take, he said.

Investors may have also balked after AGA’s co-founder Franck Gougeon upped the number of shares he was selling by about 2 million on Tuesday, while AGA itself sold fewer shares, leaving it with less money with which to pay down debt.

“It does not send a vote of confidence when you see pricing pressure and selling shareholders sell more shares,” Therian said.

At the share price of $15.50 that AGA had expected, the company would have realized $96 million from the offering, less than the net proceeds of $154.2 million it had originally estimated.

Welsh Carson, which did not sell any shares in the IPO, still owns 51.7 percent of the company after the IPO.

The move by Gougeon echoes that of the owners of RailAmerica (RA.N), a rail operator that went public last week.

RailAmerica’s owners, private equity funds managed by Fortress Investment Group LLC (FIG.N), also lowered the price range ahead of its IPO, while Fortress sold 1 million more shares than expected. Shares fell 8 percent in their debut.

The last IPO of a company owned by Welsh, Carson — an offering last month by hospital operator Select Medical Holdings Corp (SEM.N) — also priced below range. On Wednesday Select Medical shares were down 3 percent from the IPO price.

AGA’s lead products, Amplatzer devices, treat structural heart defects and made up 55.4 percent of AGA sales in the 2009 first half. AGA warned in its prospectus that it was likely to remain dependent on Amplatzer for the next few years.

The company has other products in development, including vascular grafts.

AGA’s first-half sales totaled $94.4 million, with a net loss of $4.2 million. (Editing by John Wallace and Steve Orlofsky)