IPO Failures Can Set Up Biotech Successes
This article was originally published in Start Up
Did the 31 biotechs who pulled IPOs since 2003 destroy value? By and large, no-thanks to a growing variety of financing and exit options, most thanks to Pharma's increasing appetite for high-value deals and deeper private equity pockets.
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A group of private enterprises are working to revive the moribund IPO market for venture-backed start-ups.
Domain partner Eckard Weber has become a master of the one-two punch in venture investing. The process (now in its third iteration following Merck's $350 million acquisition of NovaCardia): find a drug no one cares about; create a low-infrastructure company around it; find a second drug; sell off the lead drug through an acquisition; develop the second drug a bit more with the same management; then sell that one too. The first deal at a minimum pays back the investors; the second deal juices the returns. It's a model many VCs want to follow.
Acquisitions and crossover investors are just beginning to push up IPO prices for the best biotech offerings, providing the first hints of real competition for shares of new issues.