Biotech IPOs: Rewards Worth The Risk

30 Nov 2011

• By Amanda Micklus and Ellen Licking

An analysis by START-UP reveals that newly public companies are raising more money (on average) than comparable companies who remained private, even if total dollars for the pool of public firms is dwarfed by the total amount raised by their private brethren.

For biotechs of a certain ilk – older than five years with a mid-to-late stage clinical program – the decision to test the public waters may feel like a Hobson’s choice. Assuming the start-up’s venture investors are patient and will continue to back the group, the company can stay private and continue to push candidates through the clinic, hoping an M&A exit may materialize. Certainly given today’s capital markets, it’s easier for a biotech to choose such a path – if it remains open. But as venture capitalists ramp up fundraising efforts of their own, they also need to push for liquidity events, and absent an acquisition, the only choice may be a public offering.

Public investors certainly don’t have much enthusiasm for companies without revenue, which suggests that biotechs opting for a public debut...