In a move that could translate into more high-skilled jobs in the Roanoke area and jump-start Carilion's major economic development project, Luna Innovations Inc. filed for an initial public offering that could raise the molecular engineering company more than $57 million.

Luna -- which is 35.5 percent owned by Carilion Health System -- is to be the first major tenant at and a star player in Carilion's ambitious plans for its Riverside Centre for Research and Technology. The office and laboratory project is just south of downtown Roanoke, and is part of the plan to make health care a regional economic development engine.

Carilion's role in that process is well-established. It has invested in companies, provided dollars for economic studies, co-created a venture capital fund and funded the launch of the Carilion Biomedical Institute with Virginia Tech and the University of Virginia.

And when it comes to Luna, Carilion is there, checkbook in hand. According to the newly released information in Luna's IPO filing, the health system has bought into the company for the sum of $10 million and lent Luna another $5 million since August.

While Carilion's funding helped Luna for the short term, its long-term success requires significantly more capital. Hence the IPO, which is expected to be underwritten by ThinkEquity Partners and Merriman Curhan Ford & Co., both in San Francisco, and WR Hambrecht + Co, in the Philadelphia area. They will buy Luna's stock and sell it on the open market in exchange for a sales commission.

The funds from the sales could be used to advance Luna's research and help it enter or expand in other markets. In fact, recent advertisements from Luna were aimed at hiring technicians, researchers and engineers in a variety of fields, including life sciences, optics and electronics.

From Carilion's perspective, the IPO is appealing on at least two levels. First, it might turn Luna into a profitable investment: Carilion's stake could increase in value substantially if Luna does well.

Second, the funds could make Luna a more attractive showcase tenant in Riverside -- which could help Carilion entice other businesses there.

But before any of that happens, the IPO has to happen ... and be successful.

Because of the Security and Exchange Commission's "blackout" rules, Luna employees are virtually forbidden to talk to the media. However, the S-1 form the company filed to begin the IPO process is full of details.

Luna, which is expected to have about 50 employees at the Roanoke office when it opens later this year, makes money by doing molecular-level research into new materials and creating specialized sensors and other high-tech products for the government, universities and private corporations.

It has contracts, but it doesn't have long-term profits. While Luna made $4.1 million in 2004 (on revenue of $22.6 million), it lost $269,000 in the first three quarters of 2005.

The exact amount the IPO will bring in depends on the price Luna's underwriters are willing to pay, which itself is determined by the companies that will purchase that stock from those underwriters. (See the sidebar, "An IPO Primer.")

While ultra-successful IPOs such as those from Google or New River Pharmaceuticals might give the impression that stock offerings are always moneymakers, that's not the case. Every company faces a list of potential pitfalls.

Luna makes most of its money on research contracts, and less on product sales. In 2004, 61 percent of Luna's revenue came from that research, and in the first nine months of 2005 all of it did. That has to change, the company said.

"Our business model and future growth depend on our ability to transition to a revenues mix that contains significantly larger product sales and license revenues components," it wrote.

Luna also faces some stiff competition from well-known -- and well-established -- competitors including Dow Chemical, DuPont and Lockheed Martin.

The company says, in a bit of an understatement, "Many of our competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, sales and marketing, manufacturing, distribution, technical and other resources than we do."

But trying to be successful under the shadow of those big names is far from out of the question. Luna competes in big markets: nanotechnology, advanced materials and sensors. It doesn't have to beat the likes of Dow or Lockheed Martin to make a tidy profit.

In fact, Luna has enjoyed one of the fruits of being small: Small Business Innovation Research projects, awarded by the government to companies with 500 or fewer employees, that can be worth up to $750,000 each.

There's a downside, though. Almost two-thirds of Luna's revenue from January through September 2005 came from those projects. If the Small Business Administration considers Carilion, with its 10,000 employees, to have a controlling interest in Luna, the SBIR money would dry up.

That's why, Luna reported, "As we continue to grow, one of our goals is to derive a larger portion of our contract research revenues from contracts outside the SBIR program."

Gordie Zeigler, executive director of the NewVa Corridor Technology Council, called Luna's impending IPO great news for the region. "The more opportunities we get like this, the more publicly traded companies we get here," he said, "the more momentum we have."