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February 03, 2005

It's stuffy in here- can someone open a window?

Sarah Lacy

There are legions of biotech companies eyeing the public markets for their next cash infusion and they?e got to be sweating it out after this week.

Icagen Inc. started trading today, but at $8 per share-- a hair cut from the $10-$12 a share it had planned to go out at. Ditto for Favrille Inc., which had to lower its price twice before going out. And two others, Threshold Pharmaceuticals and CardioVascular BioTherapeutics, have been delayed. For more on the details, check out this story.

Is the window slamming shut? Before you answer that you'd have to decide how open it was to begin with. Several biotech companies had a rough time getting out last year, with the majority either cutting prices, delaying, and trading down on their first days.

But that? not necessarily defeat. The world of biotech IPOs is way different than the world of tech IPOs: It's not an opportunity for investors to cash out; it's another funding round. You just want to get out and worry about the stock price and all that later.

Were I a biotech investor or CEO, I'd be a little more worried now. Here's why: Last year, the companies that had a hard time getting out were largely the weaker companies. Not that they didn't have a good idea or good science, but they weren't far enough along, and in many cases didn't have any relationships with big pharma -- always an endorsement to nervous public market investors. CardioVascular Therapeutics, for one, doesn't have partners and is still in phase one trials-- most companies that have made it out with some success are at least in late phase two.

But, the other three seem to have some good traction, particularly Threshold, which has fast-track designation from the Food and Drug Administration for its pancreatic cancer drug, and had planned on a $500 million or so market cap-- big for a biotech IPO. Due to all the quiet periods and sensitivities, we have no idea what's going on behind the scenes here. It's very possible Threshold will still have a roaringly successful IPO in a day or two. But if they don't that could be a tell-tale sign.

And repercussions could be widely felt. I was having breakfast today with Barbara Kosacz who does legal work for biotech companies at Cooley Godward. She was talking to someone at the SEC the other day who said they are more slammed with healthcare filings than they ever have been before. Apparently, I'm not the only one who sees signs of a window closing, and the rush is on to get out before it's over.

If it does close, either the private equity world will have to pay up to keep the research going or big pharma may get some good deals on potential drugs. Either way, tough decisions will be ahead.

04:35 PM

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