Although the offerings window for biotech stocks creaked open in the fourth quarter of 1993, the renewed ability of a select group of companies to raise money hasn't changed the underlying fundamentals of the industry's capital problem: the need for capital, and hence the supply of stock, exceeds the demand from investors.

"The industry faces a very challenging conundrum," said Fred Frank, senior managing director at Lehman Brothers. "As they move out of the research cycle into the development cycle, companies' needs for capital are rising as capital is being rationed - so the supply will continue to overwhelm demand."

The result will be a continued buyer's market for stock offerings, which in 1993 was reflected in the fact that 12 of the 34 initial public offerings were completed below their proposed price ranges, and in a record number of private placements at average discounts of 15-20 percent.

Smaller take

Frank predicted that the 1994 market will look much the same, including the private placements that were popular in the latter half of the year. "That means lower dollar volumes of financings - $10-$20 million. Companies will have to get used to financing more frequently with smaller-sized offerings."

The industry did manage a respectable showing in 1993, raising a total of $2.8 billion, including public and private offerings of all types.

But investors were still clearly in the driver's seat, a fact reflected in the BioCentury 100 Price Level, which closed the year down 18 percent. "The buyers of biotech offerings are a powerful group and nobody is breaking the club," said Samuel Colella of Institutional Venture Partners. "They've got all the leverage because the market isn't bringing new buyers in, and their leverage is on price."

Even though investment bankers are working hard to lower company expectations so they can claim they've priced their clients' IPOs within the proposed price range, said Colella, "buyers are looking at the price on the cover and saying 'we'll price only in the low end or below that.' Companies have no leverage right now."