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Finance & Business Development Taking It Public: To IPO Or Not To IPO O By Suzanne Elvidge, contributing editor nce seen as the primary exit strategy for a young biotech company in a booming economy, the IPO (initial public offering) became an impossible dream for many as the economy began to slide. The window is now cautiously opening, and biotechs are starting to take advantage. However, are IPOs still the best route for everyone, and are there any alternatives? WHERE ARE WE NOW? The late 1990s saw a boom in IPOs, but the numbers plummeted dramatically in the recession of the early 2000s and the global financial crisis starting in 2007. This climate made many investors very wary of risk. "During the financial downturn, generally investors were looking for lower-risk investment targets, meaning that we saw a fall off in biotech IPOs in 2008. However, there were still some biotech specialists that continued to invest in later-stage deals," says Glen Giovannetti, global life science sector leader at Ernst & Young. "Mature private companies that have more advanced pipelines, preferably with Phase 2 data, or are developing products that will address critical unmet needs, have 'stories' that are easier to sell to investors. It's also possible to place earlier-stage companies if they have a truly differentiated technology." There are now signs that the battered biotech IPO market is coming back to life again. This year has seen a rapid increase in the number of offerings, with a queue of companies waiting in the wings. "It's currently the best IPO market in a decade in the United States," says Giovannetti. "Through July 2013, there have been 28 pure biotech 52 LifeScienceLeader.com IPOs in the United States, compared with 21 combined over the past two years." Examples of companies that have successfully floated so far this year include bluebird bio, backed by Third Rock Ventures; Cardio3 BioSciences, a Belgian cell therapy company; Chimerix, which has a focus on antivirals and an agreement with Merck; Enanta Pharmaceuticals, with a promising hepatitis C therapeutic; diagnostics company LipoScience; and KaloBios, a San Francisco company looking into antibody therapy. There's also a robust pipeline, with 10 or so biotech companies waiting to go through registration. These include immunotherapy company Heat Biologics, which is working in the infectious disease and cancer arena; Intrexon, backed by biotech entrepreneur Randal Kirk; and OncoMed, a cancer company with alliances to Bayer and GSK. "Investors are seeing that large biotech companies are performing particularly well, which creates a cascading effect, raising the values of smaller companies and increasing the appetite for IPOs," says Giovannetti. "Big Pharma companies have also been buying out smaller biotechs at more attractive valuations, which reinforces the good feeling in the market." ARE IPOs FOR EVERYONE? IPOs offer investors an exit option, but can undervalue the business, are costly, and have an inherent risk of failure. As an example, in October 2009, Omeros Corp. September 2013 was the first development-stage pure biotech company to go public since February 2008. According to the Burrill report, its initial share price was $10, which fell 13 percent on the first day of trading, and 44.3 percent by the month end. This performance may have soured the market for biotech IPOs for a period, but both the market and the company itself fortunately appear to have bounced back. When considering an IPO, decisions about the financial future of the company are critical, and should be discussed from the outset. This includes balancing the need for funding with the long-term impact on the company — for example, partnering may be a costeffective route to financing, but means sharing intellectual property. Listing as a public company also affects how the company is run; this needs to be taken into account. "There is a big difference between managing a public company compared with a private company, because of the regulatory requirements, so the right management needs to be in place," says Giovannetti. "For example, a public company CEO will need to spend a lot of time on investor relations, particularly if follow-up funding is needed, pulling focus away from R&D; and other management activities." WHAT'S THE ALTERNATIVE? Before deciding on an IPO, it's important to think about the purpose of the funding, and