Big crop of new issues reflects market revival

As mergers swept away some of the state’s biggest corporations in 2004, a new crop of publicly traded companies, the largest in years, took root in Massachusetts.

Eight local companies completed initial public stock offerings last year, the most since 2000, and two more than the previous three years combined. It was a far cry from the dot-com craze of 1999 and 2000, when nearly 70 Massachusetts companies went public.

But the revival of the IPO market, analysts said, was a significant indicator of an improving business and economic climate.

At the same time, last year’s IPO activity showed how the market has changed since the headiest days of the tech boom, when it seemed any company with an Internet

connection could go public.

Today, investors are far more demanding. Only mature companies with actual products, proven

management teams, and solid financial results need apply.

Case in point: Beacon Roofing Supply Inc. of Peabody. The company, founded in Boston nearly 80 years ago as Beacon Sales Co., went public in September, and is among the leading performers in the Massachusetts IPO class of 2004.

Growing through acquisitions, as well as internally, Beacon has posted strong profits and

sales, and saw its stock price rise more than 60 percent during its first seven months trading on the Nasdaq Stock Market.

‘‘The markets are welcoming IPOs,’’ said Matthew Littlewood, a partner in the technology practice at PricewaterhouseCoopers, the Big Four accounting firm. ‘‘But you have to be able to demonstrate you have sales and customers, and if you’re not at break-even, you’re

going to get to break-even quickly.’’

Executives of companies that went public in 2004 agree. Bob Weiler, chief executive of

Phase Forward Inc., a Waltham software firm that specializes in data management for drug and medical device makers, said his company explored an IPO near the end of the boom. Although the IPO didn’t get off the ground before the crash, Weiler recalled that investors then seemed ready to buy shares in almost any tech firm with a business plan.

This time around, investors wanted to see far more, Weiler said. The threshold for getting investment banker consideration was $50 million in annual revenues; Phase Forward reported revenues of $73.7 million in 2004.

From there, investors had to be convinced the firm was growing, the market for its products was expanding, and the management team was solid and tested.

Phase Forward stock went public on July 14, priced at $7.50 a share. The stock has slipped since then, although it rebounded after the company recently reported strong revenue growth and solid profits for the first quarter.

‘‘Investors wanted substantial companies, and you could see they had checklists,’’ said Weiler. ‘‘But having the cash to drive your own strategy is clearly worth the effort, and it has made us a clear leader in our market sector.’’

Phase Forward was the only software firm in Massachusetts to complete an IPO in 2004, and one of just a handful nationally.

Biotechnology firms accounted for half the state’s IPOs last year. Rounding out the list were medical device maker NeuroMetrix Inc., of Waltham, and Color Kinetics Inc. of Boston, which manufactures lighting systems that use light emitting diodes, or LEDs, an energy-efficient alternative to standard bulbs.

Biotechnology and other life sciences firms are generating much of the interest among IPO

investors, said Bill Whelan, a partner in the biotechnology group at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, PC, a Boston law firm.

But as in the high-tech sector, promise alone is no longer enough to get an IPO off the

ground, Whelan said.

Today, biotechs need to have drugs that are already on the market, or well on their way to getting there, before launching an IPO, Whelan said. In addition, investors are insisting that companies have other drugs in the development and regulatory pipeline; strong patents; and, increasingly, partnerships with big pharmaceutical companies.

‘‘What investors want are product companies,’’ Whelan said. ‘‘They want to be able to look at a company and envision the revenue stream.’’

Idenix Pharmaceuticals Inc. of Cambridge, for example, tried to go public in 2002, the bottom of the IPO market. It found little interest.

But last year, with three hepatitis drugs moving through clinical trials, and a partnership

with Novartis AG, the Swiss pharmaceutical giant, Idenix raised more than $80 million from investors who bought shares at $14 each in the initial offering.

With clinical trials advancing, and Idenix close to seeking final approval from the Food and Drug Administration for one hepatitis drug, its stock rose more than 40 percent in the first seven months after the July debut.

‘‘It is definitely a more selective IPO market,’’ said Jean-Pierre Sommadossi, Idenix chief executive and chairman. ‘‘Public markets want mature companies, close to commercialization, that are going to build momentum.’’