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Home > Nanotechnology Columns > Alan Shalleck-NanoClarity > Time for an IPO Update

Alan Shalleck
President
NanoClarity LLC

Abstract:
As many of you know, I explored the benefits and risks of two pending Nanotechnology IPO's this summer. They were NanoDynamics, Inc. of Buffalo, NY and Nanosphere, Inc. of Chicago, Il. Both offerings are planned at about $100 million and each was at a different stage of float.
Since the financial markets, except for the real estate and mortgage segments, have recovered most of what they lost in August and September, and the Street pros are now making impressive money again, I thought I would revisit the status and outlook of these pending IPO deals.

October 19th, 2007

Time for an IPO Update

Time for an IPO Update
By
Alan Shalleck
NanoClarity LLC
October 2007

As many of you know, I explored the benefits and risks of two pending Nanotechnology IPO's this summer. They were NanoDynamics, Inc. of Buffalo, NY and Nanosphere, Inc. of Chicago, Il. Both offerings are planned at about $100 million and each was at a different stage of float.

Since the financial markets, except for the real estate and mortgage segments, have recovered most of what they lost in August and September, and the Street pros are now making impressive money again, I thought I would revisit the status and outlook of these pending IPO deals.

Interestingly, the IPO market has returned selectively but the psychology of IPO's which is built around optimism and enthusiasm for a growing economy and company outlook over few years, has only recovered moderately. It will take more months of continued shoring up of the credit markets, with actions like the multi-billion dollar multi bank " insurance policy" just agreed to between Citi, BOA, and Morgan Chase, and fewer public bailouts to comfort the institutions necessary for a vibrant IPO market, especially one in high tech. Clearly the Cleantech private equity market has continued to boom and the path to Cleantech most times goes through the Nanospace with major investments in solar, photovoltaic, electric cars, fuel cells and nanobased battery production standing out.

NanoDynamics is a combined Cleantech and Nanotech company. It has unique fuel cell and clean water technology ( as well as a nano-golf ball that doesn't hook or fade) Its IPO offering was led by Jeffries and Co and was, at the end of July, ready to be priced for sale. The week of the pricing, the sub-par mortgage mess killed the market for any IPO and Jefferies "pulled the offering" from the calendar. What most don't realize is that the Nanodynamics offering is only delayed, not killed. "Postponing" is not "dead". The Nanodynamics offering is still active, fully qualified at the SEC and ready to go.

I have received many inquiries from you asking for the Nanodynamics IPO outlook. Since NanoDynamics is still in registration, information from the company or any insider is unavailable, at least for the record. However, digging and talking with street pros gives the following picture. NanoDynamics will retry to float its IPO toward the end of the year or early next year depending on market conditions. The underwriters are continuing to fill out their deal book with commitments from sizable institutions that were not originally approached in June and July. When the deal comes to market, the offering (depending on the final price of the stock) should be fully pre-sold with a prospect of a first few days stock jump. Much can change between now and the new float date.

Nanosphere is in the sensitive medical bio diagnostic system business with a unique product that has just reached the market. In August, Nanosphere filed an preliminary S-1 registration statement for SEC comment. Usually, there is a 90 -120 day period between a first filing and the actual offering. My estimate for the Nanosphere IPO was pre-Xmas. Nothing has changed that estimate. However, Nanosphere has had an exciting business development that it has included in its latest amendment to the S-1 filed with the SEC.

The FDA, in September, for the first time, approved the Nanosphere diagnostic system and its first clinical test on the system, measuring the level of Warfarin in the blood stream, for commercial sale. Warfarin is the widely prescribed blood thinner and it's level in the body has to be monitored constantly to prevent adversity. Nanosphere has other large volume clinical tests pending for approval or in clinical testing. Diagnostics is a razor blade business. The more tests run on the central system, the more useful the system is to the clinical laboratory and the more money Nanosphere makes. Nanosphere is a nanotechnology success story, a potential financial success story and will change many of the clinical lab techniques with its new system.

A financial caution. Some well publicized nanotech pundits (e.g. Jack Ulrich of Forbes and Lux Research of Boston) have written that the Nanosphere IPO will never occur. They believe that a large Pharma company will make Nanosphere an offer it can't refuse and that the company will be bought prior to IPO float. They are wrong. The reasons for such a buy out from either the buyer's side and the seller's side don't make business sense.

At this point, no one knows how well the Nanosphere system will work, what demand for its sensitivity and accuracy will develop and what continuing test tray volume will be generated (Nanosphere's economics depend upon the sale of special reagents and plastic multi test trays). The Nanosphere system has no sales history, record of reorder or field reliability, so a buyer would be purchasing total uncertainty. Uncertainty drops the purchase price offering. Nanosphere would be foolish to sell out prior to offering for a lower price than its models predict. Let the public price the stock. Build up a history of clinical market penetration and sales and then, let the large Pharma company bid based on calculated futures using experientially based data. The $100 million raised will be spent on marketing and expanding the test offerings, more than enough to demonstrate the market viability of the Nanosphere system and show the level of profitability Nanosphere will achieve. Ergo, the Nanosphere IPO should float.


Alan B. Shalleck
NanoClarity LLC
www.nanoclarity.com


2007 - NanoClarity LLC. All rights reserved.



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