Why invest in biotech companies which face years of risky clinical trial work when you can grab a stake in a social networking company and potentially cash out in a year or two? That's the question more and more VC groups are asking themselves, says Reuters, which is sampling opinion at its Global Mergers and Acquisitions Summit. And the answer has been a steady shift away from biotech and toward the go-go world of social media.
"Think of an IPO for an early stage biotech company. You're five, seven, nine years away from revenues and profitability. That's a big stretch today for most investors," Peter J. Solomon's Frederick Frank tells the news service. The IPO market for biotech companies is close to moribund."
Barclays Drew Birch: "Look at the choice a venture capital fund has: to invest in the next social network that might go public in 12 months, versus a scientific idea where they might get the opportunity to take it to the FDA eight years from now, and then maybe get a letter where they have to do additional clinical trials on top of that."
Over recent months there have been a number of biotechs which have gone public. But in case after case they have had to slash their IPO price and often boost the number of shares on offer to bring in the money they need. Those kinds of deals only reinforce the notion that exits are hard to achieve in the drug development world. On the up side, though, developers like Plexxikon have found that well-heeled biopharma companies are willing to pay a premium to buy biotechs.
- here's the story from Reuters