Seattle biotech Xcyte files for public stock offer

Xcyte Therapies, a Seattle biotech company that tried to go public two years ago but backed off when the market soured, is making another run at an initial public stock offering, this time for $75 million.

By Luke Timmerman
Seattle Times business reporter

If the company can drum up enough investor enthusiasm for its technology, it could join a club of at least 20 other biotech companies trying to do the same thing — get their hands on the cash they need to create drugs.

Xcyte has been polishing its IPO paperwork for weeks, and the decision to file its offering yesterday came three days after Acusphere became the first biotech company in 18 months to go public. If Xcyte does it, the company would be the first Seattle biotech to go public in nearly two years — since ZymoGenetics in January 2002.

Chief Executive Ron Berenson would not comment. Companies that register are not legally allowed to talk about their companies.

The new crop of offerings is being watched closely by companies and investors as the industry begins to emerge from one of the most agonizing three-year cash droughts in its history. Biotech is extraordinarily dependent on investor optimism because its companies run in the red and devour investor cash — spending about $800 million and a decade or more on the risky quest to develop profitable drugs.

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FACTS

Xcyte Therapies

Headquarters: Seattle, First Hill

Founded: 1996

Employees: 63

What it does: Technology to boost immune-system attacks on cancer

Attempting to raise: $75 million

2002 net loss: $19.5 million

Cash & investments: $8.9 million at the end of June, but this month it received $12.7 million in notes from private investors. The notes will convert to stock when the IPO closes.

— Source: SEC

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Any new infusion of money could help companies hire researchers, move into state-of-the-art labs, and test more experimental drugs. Joe Piper, managing director of Integra Ventures, a Seattle health-care venture-capital firm, said investors appear to be carefully scrutinizing each individual company poised to go public, looking for gems, rather than getting swept up in excitement. But even a moderate rekindling of IPOs will give venture capitalists a payoff, encouraging them to plow their profits into startups that could pay off someday, too.

"Are we excited that the market is coming back? Yes," Piper said. "Is it a panacea? No.

"People are still being careful, and they want to see if this is going to be sustained. But this is good for everybody in the industry."

Even some investors who were burned after the boom of the late 90s, a litany of drug failures, and the ImClone Systems scandal have started to regain their appetites for biotech.

In June, industry bellwether Genentech showed doctors that its experimental colon-cancer drug prolonged lives, shocking analysts who thought its technology for cutting off blood supplies to tumors would never work. Genentech stock shot up $17 the day the news broke.

That news came shortly after the Food and Drug Administration, under new commissioner Mark McClellan, approved several biotech drugs faster than expected.

Those factors have helped drive up the Nasdaq Biotech Index 51 percent year-to-date, compared with a 43 percent gain in the Nasdaq Composite. By the end of August, a crop of private companies sought to capitalize on the new optimism, attempting to raise a total of $1 billion, according to Ernst & Young.

That doesn’t mean the proverbial window of opportunity is wide open. Most of the companies on deck are in later stages of drug development and are less than a decade away from making profits. Acusphere raised $52.5 million by pricing its IPO at $14 a share Tuesday but it dipped to $13.05 yesterday.

"Biotech is a risky category, but people have made a lot of money in it this year, and the space has made a lot of people look smart," said J.D. Delafield, chief executive of Delafield Hambrecht, a Seattle investment bank.

For Xcyte, an IPO could provide cash to further develop its Xcellerate technology. Xcellerate withdraws white blood cells from the body, stimulates them to spot cancer, and infuses them back into the patient to fight the cancer. The company has early results of a human test in kidney cancer and has tests going in leukemia, multiple myeloma and other diseases.

Xcyte’s technology passed an early safety test in kidney cancer, but the technology needs to be proven safe and effective in larger trials.

The technique, known as "immunotherapy" has been a holy grail of biotechnology for two decades, but some believe it is finally making progress toward becoming useful for patients.

Jennifer Van Brunt, editor of Signals, an online biotech magazine, said many companies are hoping they can find the right timing to catch investors in the mood, but the mood is fleeting.

"The high points of financing in biotech are short, and the low points are long," Van Brunt said.

Luke Timmerman: 206-515-5644 or [email protected]

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