Venturing into the Brave New World of Diagnostics Start-Ups

Few diagnostics start-ups are bona fidebusiness successes, and that has put a damper on venture capital interest in the field. But it hasn't stopped some hearty pioneers from making bets on diagnostic tests. Perhaps they are attracted by the shorter time-to-market for diagnostics than pharmaceuticals or biotechnology, or the promise of a technology that meets an unmet need. Then again, diagnostics IPOs seem to garner attractive step-up multiples; a 5.2 pre-money average in 1997 and post-money average of 8.4, better than pharmaceutical companies' post-IPO multiple of 3.14 and 5.0 for device IPOs (including financings through August of ‘97), regardless of their eventual business success.(Step-up multiples calculate the increase in value from one financing round to the next by dividing pre-and post-money IPO valuations by total private investment.)

If investor interest is low, it isn't because the world has all the diagnostic tests it needs. And it isn't...