Spin-Out Step-Ups Reflect Bulk, Not Risk

Spin-outs tend to raise more money privately than their build-from-scratch brethren, and in Europe are seen as one of the few sustainable biotechnology business models. (See "Are Spin-Outs Really a Better Bet?" START-UP, October 2004 Also see "Are Spin-Outs Really a Better Bet?" - Scrip, 1 October, 2004..) But an analysis of our group of Big Pharma or big biotech spin-outs that have hit the public markets since 2002 suggests that while these firms are certainly heftier—and often considered better equipped to succeed in the public markets—their pre-money step-ups are in the end, nothing special. (See Exhibit 1.)

Which isn't surprising: intrinsic to the concept of a spin-out from a larger firm is less risk for VC investors; consequently those firms that took a punt on most companies...