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Biopharma VC Exits 2005-2007: Cheap IPOs, Expensive Acquisitions

 
• By Chris Morrison

Over the past three years, acquisitions have outperformed IPOs in terms of step-ups and total value. Here we take a look at the average valuations each year for the two exit categories. The figures suggest that although IPO is the logical exit, in most cases investors will advocate exploring M&A almost all of the time as well.

Although 2007 saw the so-called IPO window open up a bit for biotechs eager to test their mettle on the public markets, over the past three years, public financings have been relatively weak exit opportunities for venture capitalists. (See "Is It Getting Breezy in Here? Biotech IPO Climate Improving," START-UP, September 2007 Also see "Is it Getting Breezy In Here? Biotech IPO Climate Improving" - Scrip, 1 September, 2007..) Acquisitions continue to outperform IPOs in terms of step-ups and total value, and in 2007 it became evident that basically any company wading into a road show with potential public backers was probably playing the M&A side of the fence as well. (See "Reviewing 2007 to Forecast 2008," IN VIVO, January 2008 [A#200880003].) In 2007 we saw Adnexus Therapeutics Inc. (a division of Bristol-Myers Squibb Co.), NovaCardia Inc. (a division of Merck & Co. Inc.), and Reliant Pharmaceuticals Inc. (a division of GlaxoSmith Kline PLC) each file to go public and each, seemingly at the last moment, pull their IPOs in favor of an acquisition offer. [See Deal][See Deal][See Deal]

It isn’t hard to see why. Not only did M&A out-value IPO on an average basis (see Exhibit 1), but...

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