Biotech IPOs dying on the vine

By Phil Wahba

NEW YORK (Reuters) - While the market for initial public offerings has shut down in all industries, with no deals in the United States in nearly three months, biotechnology companies desperate for capital will likely be waiting in line far longer than others when it does re-open.

Once an industry coveted by investors, biotech has not seen an IPO since November last year, when Nanosphere Inc (NSPH.O), which develops diagnostic tests, made its $113 million debut at the bottom of its price range. Since then, it's down 68 percent, compared with just a 16 percent drop in the sector, as measured by the Nasdaq Biotech index .NBI.

Others waiting in the wings are throwing in the towel. In the last two weeks, nearly half of the biotech companies in the IPO pipeline have dropped out.

They include drug delivery company CyDex Pharmaceuticals Inc, which pulled its filing on Tuesday, along with Xanodyne Pharmaceuticals, which focuses pain management, and Phenomix Corp, which specializes in diabetes treatments, with both withdrawing last week.

"We're in a period where small cap names are not attractive," said Eric Schmidt, a biotechnology analyst at Cowen and Company.

Paradoxically, Schmidt said, many already public, larger biotech companies are attracting investors because they are "defensive" stocks, with revenues resilient in downturns, and in contrast to pharmaceuticals, no looming patent expirations.

"We're not looking at any revenue cliffs in five years," Schmidt said.

That leaves five companies in the pipeline, with deals totaling $330.5 million, according to Thomson Reuters data.

Among them are Omeros Corp, which works on central nervous system disorders and hopes to raise $115 million, and genomics analysis firm Biotrove, aiming for a $75 million IPO.

But as biotech companies have been snubbed by the capital markets, and unable to get financing, they have proven tantalizing, often willing, targets for big pharmaceuticals companies eager to replenish their drug pipelines.

This week, GlaxoSmithKline (GSK.L) purchased Genelabs Technologies, which develops therapies against hepatitis C, for $57 million.

Swiss drugmaker Roche Holding AG (ROG.VX) is trying to buy the shares in Genentech Inc DNA.N it does not already own for $43.7 billion, while Eli Lilly & Co (LLY.N) recently acquired ImClone Systems Inc IMCL.O for $6.5 billion.

But that enthusiasm only extends to biotech companies with products ready for sale.

"Pharma is not interested in funding five years of research," Schmidt said.

"No one is looking for another phase 1 or phase 2 stage company," he added. "And since no one is looking for those companies, there won't be any IPO's either."