The biotech industry is facing the likelihood of a long IPO dry spell, which could extend beyond what is being forecasted in other industries, according to a report by Reuters.

According to Reuters, the last biotech IPO was in November 2007 with Nanosphere, Inc., which develops diagnostic tests, and in the last few weeks, over half of the biotech companies in the IPO pipeline have dropped out, including drug delivery company CyDex Pharmaceuticals Inc., Xanodyne Pharmaceuticals, which focuses pain management, and Phenomix Corp, which specializes in diabetes treatments. Reuters reports that only  five companies remain in the IPO pipeline.

Instead of IPOs, Reuters reports that biotech companies are continuing to turn to mergers; however, pharmaceutical companies are only interested in biotech companies that have products ready for sale, which means that they need to be past Stage 1 and Stage 2.  Pharmaceutical companies are not interested in investing another five years in research and development right now.  Rather, they are looking for products that can quickly replenish their pipelines.

When the IPO market returns, Reuters reports that biotech companies with marketable therapies for hepatitis C, cancer and Alzheimer’s therapies will be the best prospects for an IPO.

Having said this, Reuters reports that what may delay the return of the biotech IPO is the poor price of biotech stocks, and the fact that the biotech companies who have gone public have not increased their stock prices since their IPO.  Reuters reports:  "Only seven of the 61 biotech companies to have gone public since 2000 are currently trading above their IPO prices."

Thus, it appears that biotech is headed for a long IPO dry spell that is not likely to change course, until after the economy picks back up and the industry can show that IPOs make financial sense.   In the meantime, biotech companies will have to continue to rely on alternative exit strategies.

VaxGen announced the termination of its merger agreement with Raven in a press release issued last Friday.  As a result, liquidation may be in the company’s future, reported Steve Johnson for the San Jose Mercury News. 

According to Johnson, VaxGen had planned to have its shareholders vote on the merger Monday morning, but it became clear that the deal was not going to be approved by VaxGen’s investors.

Johnson reported on the "troubled" history of VaxGen as follows:

Founded in 1995, it labored for years to develop a vaccine for the AIDS virus, HIV, but was forced to give up that quest in 2003 after its vaccine proved ineffective. In subsequent years, the company disclosed that its financial records were in disorder, resulting in it being delisted from the Nasdaq Stock Market in 2004.

The government provided a brief salvation. Following the Sept. 11, 2001, terrorist attacks, federal officials in 2002 and 2003 gave VaxGen $101.2 million to begin developing a new anthrax vaccine. The government followed that up in 2004 with $877.5 million more to provide 75 million doses of the vaccine.  It was the biggest contract ever awarded under President Bush’s anti-terror program, Project BioShield, but it was short-lived. The government revoked the contract in December 2006 when the vaccine failed a key test. .  . .

In the interest of full disclosure, VaxGen was a client of my previous employer, Pennie & Edmonds, LLP and I did some work for the company during the term of my employment at the firm.  It has been sad to see the company fall on hard times, and I am sorry now to see this report of the company moving toward liquidation.  I remember a time when VaxGen’s future seemed very full of promise, and when the management team’s enthusiasm for its work was quite infectious (no pun intended).  While the nature of the biotech business model is inherently risky and some companies will inevitably fail while others will be wildly successful, it is still sad to see VaxGen come to the end of its road under these circumstances.   I had hoped that the company would enjoy a very different fate: that its AIDs vaccine would prove to be the answer to preventing AIDS that we hoped it to be.  Hopefully the work of VaxGen–despite all of its "troubles"–has nevertheless brought us one step closer to finding that answer.