By Jennifer Van Brunt


The public offerings calendar for biotechnology stocks looks bleaker now than it did even a month ago. Since the beginning of the year, a mere handful of biotech and biotech-associated companies have managed to complete public offerings. This holds true not only in the U.S., but abroad as well. Whether it be in North America, the U.K. or Europe, investors are staying clear of the biotech sector. In the U.K., this situation is severe enough that the three companies that have announced plans to list their shares on the London Stock Exchange (LSE) in the first two months of the year have gone to great lengths to define their businesses as something other than biotechnology. In France, the one company that completed an initial public offering (IPO) this year had to put off the event several times before it finally sold its shares — and then, it was forced to revise the terms. In the U.S., the situation is no better. Here, one company also has managed to price an IPO, but others have decided to withdraw their offerings rather than wait out the poor markets.

In the U.S., Vysis Inc. (NASDAQ:VYSI) is the only firm this year to complete an IPO. And even then, the company had to settle for far less than it had hoped when it first registered the offering in October 1997. The offering had to be cut by 0.5 million shares and it priced below its proposed range. Vysis, based in Downers Grove, Ill., and spun out of Amoco Corp., has developed a business in diagnostics for cancer and pre-natal detection of genetic abnormalities. Its DNA-based diagnostics use three complementary technologies: Fluorescence in situ Hybridization (FISH), which detects chromosomal abnormalities; the gCGH (comparative genomic hybridization) Array System, which detects gene defects within chromosomes; and the Molecular Lawn System, which targets specific gene sequence mutations.

Other firms, however, have all but abandoned their plans to raise cash through the public markets. One of these, Ophidian Pharmaceuticals Inc., was poised on the very brink of pricing the units in its IPO when it finally decided to pull the offering instead. The company, which is based in Madison, Wis., is developing drugs for treating infectious diseases based on avian polyclonal antibodies, whose administration should provide passive immunity to infections such as Clostridium difficile-associated disease (a now-common side effect of antibiotic therapy) and enterohemorrhagic Escherichia coli ("hamburger disease," which can cause hemolytic uremic syndrome). Ophidian's offering had been in registration since August 1997.

Drug discovery specialist Scriptgen Pharmaceuticals Inc. — which had postponed its IPO in mid-February in expectation that the markets would turn more positive — finally abandoned all hope two weeks later and withdrew its prospectus. The Medford, Mass., company has developed a high-speed drug discovery system (ATLAS, or any target ligand affinity screen) which has already attracted a great deal of interest from the pharmaceutical sector — including Indianapolis-based Eli Lilly & Co., Hoffmann-La Roche Inc., of Nutley, N.J., and Monsanto Co. of St. Louis. In late November, when Scriptgen filed for its IPO, it had just secured the backing of Hoechst Marion Roussel Inc., of Kansas City, Mo., in a $9 million deal to identify fungal targets and develop antifungal drugs. The big pharma also was going to make a $3 million equity investment in Scriptgen concurrent with its IPO.

Two companies that had planned to raise some extra cash by going back to investors also beat a hasty retreat from the public markets in February. Both Sibia Neurosciences Inc., of La Jolla, Calif. (NASDAQ:SIBI), and Idec Pharmaceuticals Corp. (NASDAQ:IDPH), of San Diego, have withdrawn their proposed follow-on offerings due to the chilly market.

The Scene From Abroad

Of the three British companies that have announced their intentions to list on the LSE — Quadrant Healthcare plc, of Cambridge, Oxford Asymmetry plc, of Abingdon, and Oxford GlycoSciences plc, also of Abingdon — only one has actually done so. Quadrant Healthcare (LSE:QTH), which has been very clear about distinguishing its drug delivery business from the biotech sector in general, managed to raise about $33 million (£20 million), primarily from institutional investors.

And in Paris, drug discovery company Cerep SA finally completed its IPO on the Nouveau Marche in mid-February, raising slightly more than $11 million (FFr67.5 million) in the process. As well, its corporate collaborator, Sanofi SA, of Paris, bought about $3.7 million (FFr22.6 million) in Cerep equity for a 5 percent stake. The collaboration, signed in December 1997, revolves around the biotech firm's use of its various drug discovery technologies — which reportedly span the gamut from combinatorial chemistry to in vitro pharmacological testing — to identify and develop active compounds in four therapeutic areas selected by Sanofi.

Cerep had to cancel its IPO before Christmas — at the very last minute, and after deferring the pricing once already — because of unfavorable market conditions.

But apparently the new year brought with it some renewed interest in the offering, for not only did it come to completion, it was more than three times oversubscribed. However, when Cerep finally priced the shares, it had to lower its sights considerably; the original plans called for a price per share target of FFR260 to FFr300 (the final price was FFr225). (See BioWorld International, which is published on Wednesdays, for weekly updates on the financing situation abroad.)

Perhaps it is this surge of enthusiasm that has convinced a few other firms to try their luck in the public markets. One of these, Transgene SA, of Strasbourg, France, intends to complete an IPO on both sides of the Atlantic. The gene delivery company, which is one of France's oldest biotech firms, is planning to raise between $40 million and $50 million in its IPO. It's also taken on a strong partner in Human Genome Sciences Inc., of Rockville, Md. The far-ranging deal between the two biotech companies — announced simultaneously with the IPO filing — involves at least 10 genes, which Human Genome Sciences (NASDAQ:HGSI) will license to Transgene. In turn, Transgene will incorporate those genes into its various vectors and turn them into potential gene therapies. And, importantly, Human Genome Sciences will buy a 10 percent stake in Transgene. There's little doubt that the timing of these announcements was intended to enhance Transgene's appeal in the eyes of potential investors.

The Swedish company Karo Bio AB has also thrown its hat into the ring. The firm, based in Stockholm, said last week it is applying for a listing on the Stockholm Stock Exchange; it intends to raise as much as US$15 million (SEK119 million) in the deal. Karo Bio has developed detailed information on the structure of nuclear receptors, which are thought to be extremely good targets for tissue-selective drugs — estrogen receptors, for instance, as targets for drugs to treat osteoporosis and breast cancer, or glucocorticoid receptors as targets for new therapies for inflammatory diseases and Type II diabetes.

Meanwhile, back in the U.S., biotech companies seem to be hunkering down for a long cold spell on The Street. Interestingly, although investors are shunning biotech offerings at the present time, the stocks per se are holding their own. The Nasdaq Biotech Index, a market-value-weighted index that currently includes 135 Nasdaq-listed biotech and biotech-related stocks, rose from 303.10 on Dec. 31, 1997, to 314.93 on Feb. 27, 1998 — a gain of about 4 percent. Apparently, even with that gain, the biotech sector is still lagging behind the rest of the Nasdaq market — a situation that has persisted since October.

As measured by the BioWorld Stock Indicator, which calculates the average percent change in the trading price of the 303 stocks listed in these pages every week, stocks in the biotech group have gained an average of 5.6 percent since the last trading day of 1997. This is not as impressive a performance as last year at this time, when the average biotech stock had increased in price by 10.5 percent over its previous year's closing value. But at least the average stock is trading up so far in 1998 — despite the negative sentiment companies are facing when they try to sell new stock.