Private biotech companies planning to go public played the waiting game in 2001. They waited for the right moment, when the window would fly up and investors would flock to their brokers. But just as that window started to inch open late last year, it immediately slammed shut again upon news of accounting scandals and clinical blowups.

Only five biotech companies went public in the U.S. in 2001, and only one ZymoGenetics Inc. has gone public so far this year. A number of companies, CombiMatrix Corp. and DiaDexus Inc., to name a few, have had pending initial public offerings for more than a year now.

Even companies already public are finding it tougher to raise money through follow-on offerings. In 2001, public companies conducted a total of 28 follow-on offerings in the U.S., compared to 58 conducted in 2000. A total of six U.S. follow-on offerings have occurred in 2002.

The numbers lead many biotech companies to the same question. When will the window open again?

"There's no question that it could turn around very quickly," said Jon Alsenas, portfolio manager at ING Furman Selz Asset Management LLC in New York. "You can never predict."

"I think there's some hope in the second half of the year, but I think it's going to require a resolution of accounting concerns, which, by the way, are not an issue for most biotech companies," said Joseph Dougherty, senior biotech analyst at Lehman Brothers Inc. in New York. "Schemes to pump your earnings only help when you actually have earnings."

Nevertheless, the bankruptcy of Texas-based Enron Corp., which is being investigated for accounting scandals that resulted in investors losing essentially all of their money, has negatively affected all public sectors, the biotech markets included. The scrutiny of accounting practices has spread to Ireland's Elan Corp. plc and others.

News of the FDA's refusal to accept a biologics license application for ImClone Systems Inc.'s cancer drug, Erbitux, didn't help boost investor trust. And some clinical blowups have only added more suspicion.

Just in January several companies indicated their drugs failed in Phase III trials, not meeting their primary endpoints: Cubist Pharmaceuticals Inc.'s Cidecin for pneumonia, Dendreon Corp.'s Provenge for prostate cancer, Pharmacyclics Inc.'s Xcytrin for brain cancer metastasis, Inspire Pharmaceutical Inc.'s INS365 for dry eye syndrome, and Miravant Medical Technologies Inc.'s SnET2 for subfoveal choroidal neovascularization. In February, Phase III failures included Actelion Ltd.'s Tracleer for chronic heart failure and Pharmacia Corp.'s SU5416 for colorectal cancer.

"I think there's been a fair bit of bad news and not nearly enough good news in the market," Dougherty said.

Alsenas said the current market is partly a result of the stock market bubble that occurred in 2000. The biotech sector is working through the wreckage and wringing out the less dedicated investors.

"It's kind of obvious that barring some major cataclysmic event we're kind of around the bottom here," he said. But all of the blame cannot go to ImClone or Enron. "If these events had happened in late 1999, nobody would have paid as much attention to them," Alsenas said.

Most of the 67 companies that went public in the U.S. in 2000 are trading below their initial public offering price. Investors may hesitate to invest in any new biotech companies until they see an upswing in prices of the stock they already own.

"Depending on the type of biotech stock you're looking at, it's down 20 [percent] to 30 percent," Alsenas said. "There are plenty of opportunities now with these compressed valuations. When an IPO comes around, it's just not as attractive for obvious reasons."

It makes more sense for investors to buy stock in companies already public, Dougherty said. "They already have their valuations beaten down. They have trading histories."

Furthermore, with market volatility, investors seem to prefer the liquidity that biotech IPO candidates can't offer. "The typical biotech IPO has a relatively light trading volume and a relatively concentrated ownership when it first debuts, and that leaves large owners more vulnerable," Dougherty said.

That makes it tough for companies like NeoGenesis Pharmaceuticals Inc., of Cambridge, Mass., to go public. The company filed last November for an IPO to raise $115 million. In early February, it decreased its price range from between $12 and $14 per share to between $9 and $10 per share. Less than a week later, it withdrew the offering.

"When we started the process, obviously, we knew it would take four to five months to finish the process," said David Hunter, chief financial officer at NeoGenesis. "We and our investors anticipated that come the beginning of the calendar year the markets would be in a better frame of mind. That seemed to be well on its way to fulfilling itself."

But three weeks into the company's road show, "it was nothing but bad news coming out," Hunter said. "Certainly, Enron has nothing to do with biotech, but there was bad news from ImClone and things in the pharmaceutical sector."

When ZymoGenetics raised $120 million through the sale of 10M shares at $12 each, companies with pending IPOs took notice. ZymoGenetics initially wanted to raise as much as $160 million to $180 million by selling the shares at $16 to $18 each.

That's why companies like NeoGenesis are backing away for now. Hunter said the company has a substantial cash position and does not need to do a financing anytime soon. Delaying the IPO, however, will hold up expansion plans for the company.

NeoGenesis could still go public this year, Hunter said. "If it's this year, it will be late this year. The market receptivity to new offerings will be crucial."

But not all companies have the flexibility to wait. A total of 11 biotech companies have IPOs currently pending.

"There's certainly a lot of money out there," Dougherty said. "But I think the people with the private money also have the examples of low public valuations. It's not an easy time to finance right now in either the public or the private space."