Google’s hugely successful initial public offering last August was just the loudest demonstration that opportunities for IPOs are reviving after several years of dormancy. But while Google grabbed headlines and the attention of many investors, it is pharmaceutical and biotech companies that are actually dominating IPOs these days. Indeed, according to industry experts, IPO markets were particularly hospitable to biotech in 2004.

That trend is likely to continue. Steve Burrill, CEO of Burrill and Company, a life-sciences merchant bank, forecasts that some 30 to 40 biotechnology-related IPOs will occur in 2005, up from the 30 biotech IPOs in 2004. Burrill believes that, as pharmaceutical companies continue to have difficulty developing innovative new drugs, both they and the investment community have begun to recognize that innovations in life sciences are increasingly coming from the biotech sector.

Still, despite the current excitement over biotech, it does help for a startup to have a product before going public. Not surprisingly, it was companies with strong portfolios of products in the later stages of clinical testing whose stock fared best once it was publicly traded. When Eyetech Pharmaceuticals went public in January 2004, its drug for wet age-related macular degeneration (the leading cause of blindness in adults over 60) was well along in the drug development process. U.S. Food and Drug Administration approval came in December, and by year’s end, the company had seen its IPO stock price of $21 a share double, leaving it with a market -capitalization of $1.8 billion.

On the other hand, biotech companies with products still in initial, preclinical stages of testing are struggling—even startups with exciting technologies like Alnylam Pharmaceuticals, a company developing drugs that exploit a newly discovered molecular mechanism in the cell called RNA interference, which can be manipulated to shut down specific genes. [Disclosure: Robert Metcalfe, a general partner at Polaris Ventures, is an investor in Alnylam; Metcalfe also serves on the board of Technology Review.] Alnylam went public at the end of last May, hoping to raise $75 to $85 million at $10 to $12 a share. It ended up raising only about $30 million at $6 a share. According to Barry Greene, the company’s chief operating officer, part of the explanation for Alnylam’s disappointing performance may be that it was the first biotech company in three years to go public without a compound in clinical trials. The lesson from biotech IPOs in 2004 was simple: although quite a number of companies were able to go public, investors remained cautious and gravitated toward companies with actual products that were ready for human testing. “The capital markets are very discriminating right now,” says Greene.

One of the more anticipated events in the tech world turned out to be a nonevent. Or perhaps it was more of a reality check. Late last summer, Nanosys, a leading venture-backed nanotech company that is developing materials for electronics, withdrew the IPO it had planned for August 2004. [Disclosure: Robert Metcalfe is also an investor in Nanosys.] While some had hoped that the Nanosys IPO would open a window through which other nanotech startups might access the public markets, investors were clearly deterred by the Palo Alto company’s warning that it would be several years, if ever, before it had any commercial products. Warren Packard of Draper Fisher Jurvetson, a venture capital firm known for investing in nanotech, says Nanosys made a smart business decision in pulling its IPO. The market isn’t ready for nanotech, suggests Packard.

Most working in the field agree that the Nanosys decision simply confirmed that nanotech is still largely a research activity and is not ready for commercialization—something they have been saying all along. “Nanosys withdrawing its IPO was a short-term business decision on their part that really has no larger-scale impact on the field,” says R. Stanley Williams, who leads Hewlett-Packard’s effort in molecular electronics, one of industry’s largest nanotech research programs. “They felt that because of the general level of enthusiasm [for nanotech], it might be a good idea to go early. They flew up a balloon and because of macroeconomic issues at the time, they realized they would not get the reception they hoped for. As far as I am concerned, it was no big deal, and people should not read too much into it.”

What is a big deal is the resurgence of a sector once known as Internet stocks. According to a recent report by Mary Meeker—infamous for her new-economy cheerleading—and Brian Pitz at Morgan Stanley, a number of companies stand to cash in on a resurgence of e-commerce and other Internet businesses. Whether Meeker is correct this time around, the prospects of such companies—and the market success of Google, eBay, and others—are helping to spawn a new generation of Internet and desktop search companies and online auction houses. Desktop search has seen the rise of startups such as Copernic in Québec and Palo Alto–based Lookout, which was acquired by Microsoft last July.

Other startup companies also made a huge splash in the public markets. Pasadena, CA–based Cogent, which develops automated fingerprint recognition systems used by law enforcement and the Department of Homeland Security, went public in September and raised $216 million, then saw its stock price nearly triple by the end of the year. And Shanda Interactive Entertainment, an Internet gaming company based in Shanghai, China, went public in May and saw its stock price increase almost fourfold.

Technology Review editors Gregory T. Huang, Corie Lok, and David Rotman contributed to this report.