Nanosys withdraws IPO

Nicole Maestri

NEW YORK: Nanosys Inc., which is developing devices smaller than the eye can see by manipulating atom and molecules, withdrew its highly anticipated initial public offering, citing "adverse market conditions."

The $100 million IPO for Palo Alto, California-based Nanosys had been expected as soon as this week and dubbed a "coming-out party" for the burgeoning nanotechnology industry.

The company, which reported an $8.8 million loss for the first six months of this year, had planned to use the proceeds to fund its operating and capital budget for the next year and develop its core technology.

From its inception in July 2001 through June 30 of this year, the company lost a total of $25.8 million on revenue of $5.9 million.

Proponents continue to tout nanotechnology as a potential multibillion-dollar industry, though so far it has yielded only modest commercial products like stain-resistant fabrics, and some scientists say the industry's future is still 10 to 20 years off.

Nanosys says it has more than 200 patents and patent applications and its regulatory filings say it is beginning research on products for industries like energy, defense, electronics and information technology.

But Nanosys warned in its regulatory filings that it had "not yet developed any of these products and may not be able to do so for several years, if at all."

The company has collaboration deals with E.I. DuPont de Nemours, the Central Intelligence Agency-affiliated In-Q-Tel Inc., Intel Corp. and Matsushita Electric Works Ltd., among others.

WITHDRAWAL RAISES EYEBROWS

Those who follow the industry say Nanosys's limited revenue and lack of products could give pause to investors burned by the Internet bubble of the late 1990s and some said now was a time for investors to take a closer look at nanotech companies and see what they have to offer as a prelude to investing.

"The venture capitalists and other sources really have to look under the hood here," said Kitu Bindra, an attorney with Burns, Doane Swecker & Mathis, who has worked on and written about nanotechnology issues. "I think the focus needs to be on products and solving problems."

Leading venture capitalist John Doerr has complained for years about the threat of a "nanobubble".

Vinod Khosla, Doerr's partner at Kleiner, Perkins, Caufield & Byers, caused a storm in Silicon Valley circles in late May when he was quoted at a Stanford University event as saying: "Whether they (Nanosys) are doing it knowingly or unknowingly, there is a reasonably high likelihood that they will defraud the market."

He later backpedaled in an e-mail to Private Equity Week, saying that he was referring to the nanotech industry in general, not Nanosys in particular, saying the industry at such an early stage was "inherently unpredictable".

Some scientists hold high hopes for nanotechnology, which gets its name from a nanometer, or one-billionth of a meter.

Proponents contend the technology, which transforms everyday products by making materials smaller, stronger and lighter, could one day create microscopic computers or nonpolluting car engines.

Nanosys had filed to offer 6.25 million shares at an estimated price range of $15 to $17 per share. The leading underwriters on the deal were Merrill Lynch & Co. and Lehman Brothers. The company, which filed to go public in April, had submitted an updated prospectus for the IPO on Tuesday.

(Additional reporting by Ben Berkowitz in Los Angeles and Eric Auchard in New York)