Step-Ups in Convergence Plays
This article was originally published in Start Up
Executive Summary
The rationale for drug-device convergence companies-combining the device sector's speed to market and relative lack of clinical risk with the biopharma sector's margins-may be gaining some traction as of late. Half of the eight device IPOs to close so far this year, in fact, are arguably convergence plays.
The rationale for drug-device convergence companies—combining the device sector's speed to market and relative lack of clinical risk with the biopharma sector's margins—may be gaining some traction as of late (See "Gauging the Risks of Financing Convergence Start-Ups," START-UP, November 2005). (Also see "Gauging the Risks of Financing Convergence Start-Ups" - Scrip, 1 Nov, 2005.). Half of the eight device IPOs to close so far this year, in fact, are arguably convergence plays.
BioMimetic Therapeutics Inc. , which markets a recombinant growth factor/bone matrix combination product, raised $31 million in May [See Deal], while Omrix Biopharmaceuticals Inc. , the biosurgical partner of Johnson & Johnson 's Ethicon Inc. , raised $32 million in April [See Deal], to cite some recent examples.
The chart below, which plots existing shareholders' investment against pre-money IPO valuations, shows these companies have been successfully delivering returns to private investors, though not as successful as they'd originally hoped: BioMimetic had attempted to raise $50 million, while Omrix had placed a ceiling of about $58 million. However, as we note elsewhere (see "The Price Is Wrong: Finding Alternatives to Traditional IPOs" in this issue (Also see "The Price is Wrong: Finding Alternatives to Traditional IPOs" - Scrip, 1 Jun, 2006.)), delivering any return at all to private investors via IPO in today's market is no small accomplishment.