Example of a successful IPO: Targacept filed an S-1 in 2004 after late stage VC rounds, then went on roadshow in 2005 and made a deal with AZ. Only after that ramp up did they go public. Like plowing the fields before planting the seeds, a biotech must develop relationships with future investors before the IPO. To this point, it helps having an analyst on board that can position your company at the forefront of the numerous other micro caps biotechs. The analyst provides the necessary attention that will be required beyond the initial pricing.
Funding the private companies: Many VCs are adapting a “dumbell” approach by investing in either seed stage or late stage companies. The early stage is high risk but requires low capital and the late stage offers visibility and somewhat lower risk but at a cheaper level than in the past. Companies in the middle may be left out.
When the opportunity arises: The IPO is not always the best option for a company due to timing of the company’s development programs. The bankers will pitch the rewards of an early exit today, but CEOs must consider the road a few years out as a public company that is expected to deliver on a conistent basis. Private company CEOs may underestimate the demands put on them once they cross into public hands. In addition, they should make sure the balance sheet is just as ready for the years ahead as the clinical data. And on a human level, make sure you CEO can handle the psychological demands that come with volatile stock price that may be down for extended periods.
4Q09 projection: We should see many more S-1 filing in 4Q.
Positives for the industry (and why IPO interest may return):
Lots of cash at big biotechs to fund smaller companies
Lots of good science and people in these companies
Still many unmet needs and money to be made
Drugs for global diseases and for emerging markets are starting to be addressed
FDA is getting better
There will be another Gilead created
Timing – the buyside is still largely on the sidelines regarding risk
Failure rate of companies is still high, productivity low