The IPO opened like a biotech issue with a sharp premium of over $2 a share. Then it ran into heavy selling. The IPO broke issue price the next day. This is when the real Acusphere stood up -– or rather, fell down. Acusphere is not a biotech company. It is a pharmaceutical company -- one of the stock market’s weakest industrial sectors.

Acusphere priced its IPO of 3.75 million shares at $14 each on Tuesday, Oct. 7, 2003. The stock’s opening trade was $16.02 a share, up 14.4 percent from its initial offering price. Up and down Wall Street -– and beyond -- people were smiling.

By the time Acusphere ended its first day of trading, investors’ smiles had disappeared. The IPO closed at $14.03 a share, up just a few pennies from its offering price. The following day, the smiles traded places with frowns. When Acusphere’s syndicate was terminated on Oct. 8, 2003, the rug was pulled out from under the stock’s price. It plunged from $14 a share to $12.79 a share, down 8.6 percent from its initial offering price.

Terminating syndicate is the Wall Street term for disbanding an underwriting. In doing so, the IPO’s book-runner will no longer support the stock’s price in the aftermarket. If it is necessary to support an IPO’s price, the stock usually tumbles once the support has been withdrawn. The Acusphere IPO followed this rugged path.

By then, the shares were trading like a pharmaceutical issue.

Now let’s compare and contrast the biotech and pharmaceutical sectors’ overall performance:

The Biotech Index:
Over the last 12 months, the DJ Biotechnology Index racked up a gain of 62.9 percent from its low of 272.99 on Oct. 10, 2002, to its high of 444.64 on Sept. 19, 2003.

The Pharmaceutical Index:
The DJ Pharmaceutical Index turned in the second-worst loss for any other industrial sector in 2003’s third quarter. It fell 7.9 percent to close at 266.26 on Sept. 30, 2003, down from 289.16 on June 30, 2003. It was down 12.7 percent from its 12-month high of 305.08 on June 17, 2003.

Now let’s go back to what Acusphere said about itself in its prospectus:

“We are a specialty pharmaceutical company that develops new drugs . . .”

Acusphere is not alone in calling itself a pharmaceutical company. The U.S. Securities and Exchange Commission says the same.

It may be difficult to tell a biotech IPO from a pharmaceutical IPO. Basically, biotech companies engage in cell research and the development of therapies, while pharmaceutical companies develop and make drugs.

But all is not lost. The SEC offers some guidance in sorting out the difference.

The SEC classifies a company according to its industrial sector, and assigns each company a Standard Industrial Classification (SIC) code number. These code numbers appear in the IPO’s S-1 and S-1/A filings. All you have to do is look at the prospectus.

Note:
* The SIC code number for biotechnology companies is 2836.
* The SIC code number for pharmaceutical companies is 2834.

Acusphere’s SIC code number is 2834.

Yes, Virginia, it pays to read the fine print.

On Wall Street, though, even those who may have skimped on doing their homework got a harsh rap on the knuckles from the headmaster.

The old Wall Street axiom is: The tape tells the story.

What the tape has been telling us is that biotechs are “in” and pharmaceuticals are “out.”

A lesson from IPOs 101: Read the prospectus.