Lee Cooley is used to financial headaches. At three start-up high-technology companies, he has handled money matters.
All the same, nothing prepared him for last month's stock market crash.
Cooley, chief financial officer of Applied Immune Sciences, a small Silicon Valley biotechnology company, had planned to preside over the company's first public stock offering next week. The sale was expected to raise between $18 million and $21 million, money intended to support the firm's efforts to develop treatments for AIDS and certain cancers.
But in the wake of the stock market's dive Oct. 19 and subsequent turmoil, Applied Immune Sciences--along with dozens of companies across the country--delayed its stock offering indefinitely rather than sell its shares cheap.
For some well-capitalized companies--including such California firms such as MTM Entertainment and McClatchy Newspapers--the delays in going public are no more than a minor nuisance. But Applied Immune Sciences and other small concerns may now find themselves struggling to come up with the money they need to pursue plans to expand or develop new products.
Analysts say the current climate for initial public stock offerings, or IPOs, is the worst in decades.
"It's gone to zero," said Alan Stein, executive director of investment banking for Montgomery Securities in San Francisco. "And we haven't felt the full impact of this. . . . We're in the middle of this. Not at the end."
According to Investment Dealers Digest, a New York-based newsletter, 56 companies were scheduled to go public over the last two weeks. Only six of them, however, have gone ahead. And of those six, three are investment firms that manage high-grade income funds, which generally fare well in bear markets. The three others are small outfits whose offerings were each under $5 million.
Analysts estimate that another 200 or more "substantial" IPOs cleared by the Securities and Exchange Commission are now waiting for the proper market conditions.
Other Sources of Money
For the time being, analysts don't expect the sour IPO market to to have dire consequences for any companies.
"I wouldn't expect a lot of companies to close their doors," said Paul Simmons, director of research for the Institute of Econometric Research in Fort Lauderdale, Fla. "A lot of companies are very substantial and have other sources of money," including loans, private investments and corporate partnership agreements.
Even for companies that remain committed to going public at some point, the decision to postpone an IPO was often easy. That's so, analysts say, because the market value of many of these companies plunged 40% to 50% after the crash.
"It's just prudent to wait and see where the market is going and where it will stabilize," said Lydell Christensen, treasurer of Pacific Telesis, whose PacTel Personal Communications subsidiary has delayed indefinitely a $285-million to $330-million IPO that had been set for later this month.
Christensen said he isn't concerned about the finances of PacTel's cellular telephone and paging subsidiary. Proceeds from the offering had been earmarked for repayment of a loan that financed the purchase of a Detroit cellular operation. PacTel is stuck with the debt for now, but Christensen said it can handle the borrowing costs easily.
"While the offering was for a substantial amount of money, in terms of the whole corporation, there is no real impact," he said. "We have the resources to get capital elsewhere."
It isn't as easy for small operations, such as Applied Immune Sciences, that are still waiting for the first, big break.
According to Cooley, Applied Immune Sciences will scour the financial community to come up with another source of money within the next 12 months. That will be the case, at least, unless the market for IPOs rebounds quickly, the biotechnology industry booms or Applied Immune Sciences wins Food and Drug Administration approval for one of its "big disease" treatments. And prospects don't look good for any of those developments, he said.
Look for Joint Partner
A more likely scenario, he said, is for the company to look for a joint venture partner for help in developing new products or for a corporate partner that can handle its marketing.
"We have enough money to carry us for the next year, but we were looking ahead," Cooley explained. "We would like to have been in the position of being able to concentrate on the clinical trials (of treatments) without any financial distractions."
Some of the companies that delayed IPOs weren't simply trying to raise money for the corporation.
For example, McClatchy Newspapers, publishers of the Sacramento Bee and 11 other West Coast daily newspapers, had planned a $48-million to $55-million IPO next week. Slightly more than half the proceeds were to go to corporate coffers, with the remainder going to six heirs of C.K. McClatchy, founder of the publishing empire.