INSUBCONTINENT EXCLUSIVE:
Joanna Glasner
Contributor
More posts by this contributor
While tech waffles on going public, biotech
IPOs boom
Shoe startups aren''t dragging their feet
Startup exit tallies commonly underestimate biotech returns
Unlike most tech deals, the biggest profits in bio often come long after an IPO or acquisition.
TakeJuno Therapeutics, a publicly traded
cancer immunology company that sold to pharma giant Celgene this year for $9 billion
At first glance, it doesn''t seem like a deal that would impact Juno early investors.
After all, Juno went public back in 2014
Though the Seattle company raised more than $300 million as a private company, pre-IPO backers had years to cash out at healthy
multiples.
Yet some held on
Bob Nelsen, managing director of ARCH Venture Partners, Juno largest VC backer, told Crunchbase News that his firm was still holding nearly
its entire 15 percent pre-IPO stake when Celgene bought the company.
In the end, the acquisition netted ARCH limited partners 23 times their
money, bringing in close to a billion dollars
It an exceptional return, even by venture home run standards.1
We tend to distribute on milestones, not financing events,& Nelsen said of
his firm approach to exiting a portfolio investment
That often means holding for years after an IPO awaiting positive clinical trial outcomes or other value-creating inflection points.
For
public companies, that can be done over time or all at once, and usually comes in the form of company shares rather than cash.
So when is it
an exit
It outcomes like Juno that help explain why life sciences, despite bringing fewer first-day IPO pops and buzz-generating unicorn
exits than the tech sector, still consistently attracts roughly a third of venture investment
But oftentimes it not with a lot of fanfare and usually not with a public market debut.
I don''t think IPOs are ever an exit in biotech
It always a financing event,& Nelsen says
While ARCH may hold shares longer than the typical VC, he says it not uncommon to hang on the stakes for a while post-IPO.
That IPO-and-hold
strategy appears to have worked out well for the firm on other occasions
Other portfolio companies that went public and were later acquired for multiple billions includeReceptos, a drug developer, andKythera
Biopharmaceuticals, best known for an injectable to reduce chin fat.
Using Crunchbase data, we looked to see how common it is for a
venture-backed biotech company to go public and then sell a few years later for multiple billions
We found at least eight examples of companies selling for $2 billion or more in the past five years that went public less than four years
(See listhere.) Altogether, these acquisitions were valued at more than $47 billion.
Racking up post-IPO gains
It also not uncommon for
biotech startups to grow into multi-billion dollar public companies a few years after IPO.
Using Crunchbase data, we put together alistof a
dozen life science companies that went public in roughly the past five years and have recent market values ranging from $1.5 billion to
(This is a sampling, not a comprehensive data set, and was assembled based on exits of several top-tier life science VCs.)
On top was gene
therapy juggernautBluebird Bio, which has seen a seven-fold rise in its stock price since going public five years ago
Next wasSage Therapeutics, a developer of therapies for central nervous system disorders, up more than six-fold since its IPO four years
ago, reaching a market cap of nearly $8 billion.
Then on the device side there&sInogen, a maker of portable oxygen concentrators for
patients with respiratory ailments
It went public at a valuation of less than $300 million in 2014
Today it worth around $4.3 billion.
Yes, it true tech stocks can see massive gains a few years after going public, too
But the drivers are usually different
In tech, a company may see its stock jump after a big rise in sales, but it probably had sales in prior quarters
The business hasn''t fundamentally changed; it just improved.
Moreover, tech venture capitalists do generally consider an IPO an exit
While insiders usually can''t sell shares immediately, they&re typically comfortable liquidating when they can around the IPO price.
For
bio, hitting key milestones changes the entire value proposition
A company can go from having no marketable product and no sales to quickly having one or both of those things.
Milestones and money
Returns
from biotech startup MA exits are also hard to pin down because of the widespread use of milestone payments
Buyers pay an upfront price with the agreement of more to come following favorable clinical trial results and a commercially successful
therapy.
Often, it several multiples more to come if milestones are met
TakeImpact Biomedicines, one of this year biggest private company exits
Celgene bought the company for $1.1 billion
However, the deal could be valued at up to $7 billion over time.
But the probability of hitting all the milestones seems low
To get the full $7 billion, global annual net sales of Impact therapies would have to exceed $5 billion
However, some milestones look more feasible, such as a $1.25 billion payment for obtaining regulatory approval.
This kind of deal structure
is pretty common, and not just for MA
Astudyby medical news site STAT analyzed nearly 700 biotech licensing deals and found that, on average, just 14 percent of the total
announced value was paid out up front.
As with returns from post-IPO acquisitions, it hard to gauge just how well investors end up doing on
these milestone-based purchases
The largest payoffs can be years down the road.
The opposite of tech
If it seems like the dynamics of a bio exit are, in many ways, the
opposite of a tech exit, it worth considering how different the two sectors are at the early stages, too.
In the tech startup world, it
common for a company to launch with an idea that sounds silly (tweeting, scooter sharing, air mattress rentals) and then suddenly be worth
billions.
Bio companies are kind of the reverse
Practically every one sounds like a great idea (curing cancer, alleviating pain, treating neurodegenerative disease), and many turn out to
Investments that work out, however, may take a while, but eventually deliver in a big way.
Making 23 times your money back is exceptional at
However, when it does happen, it most common at the seed stage for investment, where investors put in single digit millions or less
In the case of ARCH, 23X it is a particularly high return because it encompasses all the rounds Juno raised before going public.
