Nano Says No to IPO

By Rich Duprey
August 5, 2004

On second thought, never mind.

Just the other day we were discussing the potential for Nanosys to bring back the heady days of Internet, dot-com IPOs, where a company with no commercial products or profit was creating industry buzz. It had the pedigree. It had the backing. It was going to be the blockbuster IPO that changed everything.

Except yesterday management changed its mind. Citing "adverse market conditions" -- the Nasdaq lost 8% in July, its worst showing in two years -- the company pulled its IPO.

Nanosys is a Palo Alto-based nanotechnology start-up long on ideas but short on everything else. It had the backing of the Rockefeller family's Venrock Associates and the CIA's private venture capital firm In-Q-Tel (yeah, we're still scratching our heads over that one too). It got directors from Hewlett-Packard (NYSE: HPQ) and lined up partnerships and financial backing from Intel (Nasdaq: INTC) and DuPont (NYSE: DD).

Nanotechnology is involved in creating things from material that is smaller than 100 nanometers, or one-billionth of a meter. It has starry-eyed investors seeing potential applications for new industries based on the technology, with Nanosys' nano-structures used in everything from solar panels to flexible and flat-screen video displays to dense computer memory.

The Nanosys IPO was scheduled to raise between $94 million and $106 million, before underwriting costs. The company needs the cash, too, because it's burned through $26 million since its founding in July 2001. It reported a loss of $8.78 million on revenues of $2.5 million for the six months ending June 30. It still has $35 million in the bank, though, and the IPO would have created a nice cash infusion.

That's a lot of money for a company with no commercial products. Like in the dot-com bubble days, a lot of firms seem to be trying to horn in on the nanotech mania. Still, there are firms out there with viable products, such as Veeco Instruments (Nasdaq: VECO), Nanophase Technologies (Nasdaq: NANX), and Flamel Technologies (Nasdaq: FLML), a pick of Tom Gardner's Hidden Gems newsletter.

Nanosys, on the other hand and despite the hoopla surrounding the company, is a company based on potential, not product. It has more than 200 patents and patent applications, and its regulatory filings say it hasn't developed any products "and may not be able to do so for several years, if at all."

While nanotechnology may become a viable industry in the future, it's up to investors to carefully examine the merits of each company and not get caught up in the frenzy that surrounds any one particular company.

For this company's foreseeable future anyway, Nanosys is a no-go.

Fool contributor Rich Duprey owns shares of Flamel, but not of any of the other stocks mentioned in this article.