Biotech toolmaker Caliper Technologies Corp.’s initial public offering is another test for investors’ appetite for tech stocks that don't involve the Internet, e-business or broadband.

Caliper, a life-sciences firm that make devices that speed up pharmaceutical research, hit Wall Street today at $28 a share.

It had priced on Tuesday night at $15, at the top of its range, after expanding its offering to 4.5 million shares from 3.6 million. The company had hoped to net $57.6 million from the IPO.

Although analysts are divided on the prospects for new biotechs, some investors may be disappointed if they think backing firms building a new technical infrastructure for the biotech industry will generate the same kind of lucrative returns recently posted by some Internet-infrastructure stocks.

"It’s not the same thing," says Bill Slattery, life-science fund manager for Amerindo Investment Advisors, based in New York. "From a technical standpoint, these new drug-delivery tools make a lot of sense. But from a business perspective, you have to be more careful."

Founded in 1995, Mountain View, Calif.-based Caliper Technologies makes a lab-on-a-chip drug-research tool that facilitates the search for new pharmaceuticals. Several other similar firms are lined up in the IPO pipeline, hoping the interest generated by Caliper’s offering might help revive the sagging market for biotech IPOs.

"This kind of technology will pretty much change the whole paradigm of the drug-discovery industry," says Tricia Nagle, managing editor of The Drug and Market Development newsletter, based in Southborough, Mass. "It’s one of the most-exciting areas we cover."

It’s an industry that could use a little more excitement.

Although the overall market for IPOs has never been hotter, IPOs by biotech firms have, for the most part, not gotten in on much of the recent action, generating just $369 million in capital last year as compared with $1.5 billion in 1996, according to Burrill & Co., an investment bank based in San Francisco.

There are several reasons for the lagging performance, all of which are reflected in the ascendancy of biotech toolmakers such as Caliper.

Long delays associated with delivering new biotechnology products to market, along with conspicuous failures in advanced stages of testing of many new drug compounds, have led many investors to shy away from once-popular biotech stocks.

Into that breech step companies such as Caliper, which offers investors a chance to bet on biotechnology without exposing their portfolios to the possible failure of any one particular experimental compound.

On the surface, it sounds like a no-brainer. Dig a little deeper though, and you learn that at least some industry analysts remain cautious about the sector.

Although careful not to single out Caliper, in particular, Karen Bernstein, the editor of Biocentury, a Belmont, Calif.-based publication that tracks key biotech industry developments, says it would be a mistake for investors to conclude that biotech companies will be assured of success simply because they make a tool needed by the industry, even if the tool is excellent.

"One tool is not enough," Bernstein says. "Scale is absolutely critical. The amount of tools a company can offer is very important."

One reason for Bernstein’s concern is obvious, if not intuitive. Although as much as $30 billion is expected to be spent on biotech research next year, the number of customers purchasing biotech tools, or integrating them into their laboratory products, remains relatively small.

Caliper Technologies, for example, currently has just a handful of major customer accounts, including deals with Amgen Inc. {AMGN}, Eli Lilly & Co. {LLY}, and Hoffmann-La Roche. The company currently sells a single product that can be used in a variety of laboratory applications.

"The other issue that comes up is that your customers may become your competitors," says Jim McCamant, editor of The Medical Technology Stock Letter, based in Berkeley, Calif. "Big drug companies face a question of whether it makes more sense to buy a new tool or to build one of their own. Due to the royalty-stacking problem, pharmaceutical companies can be reluctant to do business," with biotech toolmakers, he says.

Royalty-stacking refers to one of the ways biotech toolmakers have been trying to get around the limited opportunities related to the small number of firms interested in their wares. The idea is to charge companies that use their tools a small percentage of the royalties that result when a new pharmaceutical is actually brought to market.

"The problem is, if you use many of these tools, you can’t stack eight or 10 royalty agreements on every new drug," Slattery says. "It’s like if you bought a spreadsheet and then had to pay some percentage on everything you use the spreadsheet for to the company you bought it from. It doesn’t make any business sense."

Caliper aims to get around that problem by signing customers up to its technology-access program, which is essentially a yearly subscription that entitles them to future iterations of the firm’s products. Whether that business model can work over the long term, however, is still an open question.

"The companies that do the best will be the ones that work most closely with their customers to make sure they are providing what is needed and staying on top of new technologies," Nagle says.

Nagle says she understands the position of other industry analysts who emphasize the risks involved in investing in biotech toolmaker stocks, such as Caliper. "It’s tough to place a value on companies based on what is in the clinic when none of the compounds developed with these new tools have been introduced yet."

Nonetheless, Nagle says the profile of biotech toolmakers such as Caliper will be raised once new drugs developed with their technologies start making their way to market, a development that could give biotech toolmakers more leverage with customers and more opportunities to develop their own proprietary drugs.

"It’s important to look down the line a few years and think about how all this is going to come out, particularly after the human genome project [which is expected to yield promising new drug research possibilities] is finished," Nagle says.

It’s a point McCamant readily concedes. He says the best such companies will be candidates for mergers and acquisitions by their largest customers, which could make them good investments.

Nonetheless, McCamant says investors probably won’t see the huge run-ups in biotech toolmaker stock prices similar to those that take place when a pharmaceutical firm successfully brings a new drug to market.

"It’s not going to be 10 to 20 times on the upside," McCamant says, "but you can still make money on them."

As for Caliper’s prospects, McCamant says there are reasons to be optimistic, despite his concerns about the overall dynamics facing the sector. "Caliper has a very good, experienced, executive team, it’s a well-run company, and they have an interesting technology."

Other biotech toolmaker companies in the IPO pipeline, in addition to Caliper, include Aclara Biosciences, based in Hayward, Calif., which is involved in a patent lawsuit with Caliper, and Princeton, N.J.-based Orchid Biocomputer.

Caliper reported a loss of about $3 million in fiscal 1999 on sales of $8.2 million.