NEW YORK -- The recent lightning-fast downturn of the biotech sector could derail planned initial public offerings of many companies that had hoped to go public in the next few months, analysts said.
Three biotechs that had been scheduled to launch IPOs last week had their debuts postponed until this week, and some analysts predict one or more of them may be delayed indefinitely -- and re-emerge once the biotech sector returns to favor.
"Biotechs are postponing their IPOs like mad, and temporary postponements often mean indefinite postponements," said Irv DeGraw, research director at WorldFinanceNet.com.
Companies are getting cold feet, some analysts say, after a blistering 30 percent decline in the biotech sector in the past month. Many biotech stocks went into a tailspin after President Clinton last month made comments that drew attention to the sector's extreme volatility.
The three postponement last week were by Rigel Pharmaceuticals Inc, a South San Francisco firm that selects protein targets for drug development; Adolor Corp. of Malvern, Pennsylvania, a developer of pain drugs; and DrugAbuse Sciences Inc. of Menlo Park, California, which develops treatments for drug and alcohol abusers. None could be reached for comment.
An underwriter for all three companies, Warburg Dillon Read, said DrugAbuse Sciences was slated to begin trading on Tuesday, to be followed on Wednesday by Adolor and on Thursday by Rigel.
IPOs of DrugAbuse Sciences and Adolor were delayed mainly to clear certain regulatory issues, while Rigel was delayed because of market conditions, the underwriter added.
Almost a dozen biotech companies have already gone public this year and another score have filed to raise money through IPOs by late May.
"You have to go back to 1993 and 1994 to see such a proliferation of biotech companies that want to go public. But their hopes could be dashed because the back of the recent biotech rally has been broken," said John Fitzgibbon, who tracks IPOs for RedHerring.com.
Fitzgibbon pointed to Allos Therapeutics as a sobering barometer of the current IPO biotech climate. Allos shares closed at 13-13/16 its debut day of March 29, well below the initial public offering price of $18. Shares of the Denver firm, which develops cancer drugs, were at 14-5/16 on Monday.
"It's unusual for any biotech IPO to behave like Allos, and wind up below its issue price" on opening day, Fitzgibbon said. Such a bad Wall Street reception could scare other biotechs away from the IPO scene until the sector rebounds, he said.
The biotech IPO frenzy began last year with the triumphant debuts of three California firms, all helped by resurgent interest in the sector and its cutting-edge, gene-based research.
Genentech Inc. of South San Francisco, whose IPO had been priced at $48.50, closed its first day of trading on July 20 at $63.50 and has since roared to the $150 range, adjusting for a 2-for-1 stock split along the way.
Tularik Inc., a smaller South San Francisco drugmaker, closed at 20-1/8 its first day of trading on Dec. 10, well above its IPO price of $14.
And gene manipulation company Maxygen Inc. of Redwood City, closed up 26-1/16 to 42-1/16 on Dec. 16 after its $16-a-share IPO. On Monday, it was at 63, having hit 185 three weeks ago at the peak of this year's now-fizzled biotech rally.
"They all came to market and did better than expected, which encouraged other companies to jump on the biotech IPO bandwagon," said Fitzgibbon, who noted that the Nasdaq Biotech Index of over 200 U.S. and European biotech companies more than doubled in 1999.
Interest in biotech grew even stronger early this year as government and industry scientists vowed to complete their race to decode, or sequence, the human genetic blueprint in 2000.
By mid-March, the biotech index had soared another 80 percent, with a half dozen additional companies staging successful debuts, including Antigenics Inc., Sequenom Inc., and OraPharma Inc.
Euphoria turned to trepidation on March 14, however, when Clinton and British Prime Minister Tony Blair said scientists worldwide should have free access to research on the mapping of human genes. A giant sell-off left the Nasdaq biotech index 12 percent lower by day's end.
Wall Street analysts quickly argued that investors had misread the Clinton-Blair announcement as bad news for biotechs, when in fact it was a favorable reaffirmation of existing government policy to sequence the human genome and release the information freely to the public.
But investors, newly educated about just how volatile the biotech sector can be, have generally continued to flee.
DeGraw said biotech companies that specialize in making "tools" -- high-tech systems and software used to study genes and discover drugs -- will have the best chance of reaching the IPO finish line in today's skittish biotech climate.
"Industry and academics will continue to need hosts of new, smaller and faster instruments to do their research," he said, so companies making them can expect fairly immediate sales and service revenues. "That appeals to investors."
Tool companies that have gone public recently have indeed fared well. Aclara Biosciences offered at $20 on its opening day of March 21 was trading at 38-3/16 on Monday. It specializes in the hot area of "microfluidics," in which many drug targets are studied simultaneously on miniaturized chips containing tiny amounts of chemicals used to trigger reactions.
But IPO analysts say traditional biotechs, research outfits that typically have not yet developed products to sell, will be less likely to fetch their desired IPO prices until biotech's star burns brighter.
Other biotechs scheduled to go public this week include drug researchers Tanox Inc. (Wednesday), Sangamo BioSciences Inc. (Thursday), and Elelixis Inc. (Friday). Another microfluidics company, Princeton, N.J.-based Orchid Biosciences Inc., and California drugmaker Virologic Inc., are scheduled to debut the week of April 17.
