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Google Not The First To Go Dutch

By Jerry Knight
Monday, August 23, 2004; Page E01

You don't have to be Google to challenge the way Wall Street manages initial public offerings. A little southwest Virginia biotechnology company has just gone public using the same innovative "open IPO" process as Google.

Like Google, New River Pharmaceuticals Inc. learned it's not easy to mount a revolution against Wall Street royalty and the oligarchy of investment firms that skim the cream off most IPOs. Neither Google nor New River Pharmaceuticals raised as much money as they wanted in their IPOs and neither was able to completely wrest control of the IPO process from the Wall Street bankers and institutional investors who pull the strings in the new-issues market.

Patrick Byrne, chief executive of Overstock.com, is a fan of the Dutch auction IPO process. His company used it to go public in 2002. (Overstock.com Via Prnewsfoto)

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But they did pull off their offerings at a time when tech stocks were tanking and other companies were canceling plans to go public.

And in doing so they demonstrated that the IPO process can be changed in ways that ultimately benefit small investors and companies that need to raise capital.

In that context, New River Pharmaceuticals of Radford, which went public the first week of August, may prove as important a precedent as Google.

Google gets all the ink and air time because it was such a big deal -- a $1.8 billion stock sale, one of the biggest high-tech IPOs ever. With its name already a synonym for "searching the Internet," Google was guaranteed an IPO under almost any circumstances.

New River, on the other hand, is an early-stage biotech company that is trying to develop safer versions of three often-abused drugs: the pain relievers oxycodone and hydrocodone and the kind of amphetamine used to treat attention deficit hyperactivity disorder (ADHD) in children. The ADHD drug is ready for clinical trials; the others are being studied by scientists at New River's research lab in Blacksburg.

Founded by lawyer-turned-investor Randal Kirk, who used profits from previous pharmaceutical ventures to launch the company, New River originally filed for a conventional IPO underwritten by a Wall Street investment bank. Not satisfied with the reaction from bankers and their clients, New River switched to an auction-style offering several weeks before Google announced its plans.

Wall Street bankers were bitter when Google decided to bypass the usual process and do a "Dutch auction" offering introduced by William Hambrecht, a founder of Hambrecht & Quist, the investment firm known for so many Silicon Valley IPOs. After selling that firm, Hambrecht started W.H. Hambrecht and Co. and set about reinventing the capital-raising process so the benefits flowed to companies and their stockholders, not Wall Street.

The process originated at flower markets in Holland, where a grower with 1,000 dozen roses for sale gives an asking price, such as $3 a dozen. Buyers then bid for part of the batch: "I'll take 100 dozen at $2.90 . . . 300 dozen at $2.85." The bids keep dropping until there are offers for the entire lot. That low bid becomes the selling price for all the blooms.

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