Biotech versus Tech: Investment Timelines – Who’s the Tortoise?

Posted on February 24th, 2015 in Uncategorized by Karl

Posted by Bruce Booth on the Atlas Ventures Blog on 24 Feb 2015

Getting a drug from discovery to market requires more than a dozen years, so you just can’t do biotech in a 10-year venture fund – it just takes too long, right?  Fortunately, wrong.  The data just don’t support this premise, although this common misperception of biotech continue to be promulgated by industry pundits, and I hear them within the institutional investing community in particular.

I’ve written in past blogs on holding periods in VC-backed biotech, often charting data for different vintages for the sector’s time from founding to exit, for instance.  In the summer of 2011 (here), IPOs in the decade of the 2000s were explored showing no difference from other sectors. In spring 2013, largely before the current IPO window, looking at both IPOs and M&As (here), the 2009-1Q2013 dataset revealed that VC-backed biopharmaceutical companies experienced M&A and IPO events at a younger age than technology companies in that vintage.  The bias was especially true for M&A events valued at greater than $100M.

Since the public markets have changed dramatically over the past two years, I thought it worthwhile to re-examine the latest data on the venture-backed IPO Class of 2014.

According to Thomson Reuters data shared by the National Venture Capital Association (NVCA), there were 114 venture-backed IPOs in 2014. Pie chart of IPOsThis doesn’t include IPOs that didn’t have US-based venture capital investors involved or were on foreign exchanges. The majority of these venture-backed IPOs were in the Biotech sector (56%), as per the pie chart here.

These ThomsonOne data also track the initial investment date for these companies, enabling one to examine the “time from first investment to IPO” for the dataset. The two charts below depict both a summary distribution (with terminal deciles, quartiles, and median data) as well as a cumulative distribution (with each company datapoint for Software and Biotech).

Time From VC-Investment to IPO_Feb2015

As the charts above reveal, Biotech’s median time to IPO was essentially identical to Software and other VC subsectors. However, the faster end of the data’s distribution is strongly skewed towards Biotech: 33% of Biotech’s 2014 IPOs occurred within five years or less of their initial investment date versus only 20% of the offerings in software and other VC subsectors. Some of these have been incredibly fast, like Juno Therapeutics, Loxo Oncology, and Atara all going public less than two years from their initial venture investment.  This skew in the distribution explains why Biotech as a sector has a ~10% faster arithmetic mean (average) time to IPO than Software: 7.4 years versus 8.0 years, respectively.

There are many reasons for this faster path to IPO in biotech, and the topic was explored in detail in an earlier post (here).  Simply put, in biotech we are largely taking exciting R&D-stage companies with enormous promise and financing them in the public markets to develop their drug candidates further, whereas in software, the buyside typically requires $100M+ revenue run rates with double-digit growth multiples and often profitability in order to get public.  These are very different types of businesses, and the latter often takes many years to build.

So in the more recent vintage of IPOs the conclusion still hold: Biotech is certainly not the tortoise of venture capital.  The time period from first funding to IPO is at least as fast, if not faster, in Biotech as it is for other venture sectors.

It might seem redundant with past blog posts, but more data, and more recent data, confirming the same findings are always helpful in framing investment perspectives about the sector.


Private Companies Dreaming of an IPO: Be careful what you wish for!

Posted on February 23rd, 2015 in Uncategorized by Karl

The following is a blog entry write by Ron Renaud, CEO of RaNA Therapeutics on 2/23/2015:

Three years ago, I was walking across One Kendall Square in pursuit of a late lunch and bumped into a friend – another biotech CEO. I was a year into my role as CEO of Idenix, a publicly traded biotech focused on hepatitis C. My friend was CEO of his respective private biotech for many years. The two of us had known each other for a long time and exchanged a few quick updates on our respective companies. Before we parted, he asked me if he could “pick my brain” on being a public company CEO as he was thinking about taking his successful private company public. I responded – “be careful what you wish for” but was happy to have that future chat with a good friend. As I walked away from that brief conversation, I was surprised at how quickly my sarcastic response came out and have reflected on it many times.

My response about being a public company CEO at the time reflected the culmination of many years in the world of publicly traded biotech; first at Amgen in a number of positions in clinical research, investor relations and finance. Following my years at Amgen, I analyzed (sometimes criticized) the prospects of publicly traded biotechs as a sell-side analyst at firms such as Bear Stearns and JP Morgan. Within the last nine years, I have been back inside a couple of publicly traded biotechs as a CFO, CBO and CEO.

In all of the career moves above, I realized that the genetic material that enables one to deal with the anxiety of quarterly updates, conference calls, clinical holds, writing reports and analyst meetings is incorporated into our DNA early in our careers. For nearly twenty years, I have had a calendar that has been blocked from the beginning of January through the end of February as well as the last two weeks of April, July and October to prepare for earnings or an update either as an insider reporting the information or as an analyst trying to make sense of it. It is not uncommon for a publicly traded management team to spend an inordinate number of hours crafting the right public disclosure such as a press release or an SEC filing. Beyond the normal quarterly financial updates, there are the countless unexpected events such as clinical trial results, manufacturing delays and legal updates that are often deemed material to a small company thus requiring some level of public disclosure. This is certainly not unique to our industry either but I do believe early stage, public biotechs are a different entity than early stage tech companies that often have revenues and an established platform.

So why was my immediate, knee-jerk reaction to tread carefully into the public landscape? The clarity to answer this has come now that I have joined privately held RaNA Therapeutics as its CEO but I need to digress to explain. When I became CEO of Idenix in October of 2010 it was the weekend before the American Association for the Study of Liver Diseases (AASLD), which is a big meeting in the HCV world. We had planned a large analyst meeting at the conference to discuss our recent clinical holds, pipeline progress and future plans. I was quite excited to get in front of analysts, investors, and key opinion leaders as a new CEO. I was also looking forward to getting past AASLD and getting back to Idenix to spend time with our staff figuring out how we were going to move forward. It was nearly a month before I felt I could hunker down with the team and forge my own strategy for Idenix. Even at that – time was so limited as we had to start preparing for upcoming presentations and meetings at JP Morgan. Frustrated, I often asked my team how we were going to establish a direction for Idenix when we were spending so much time dealing with the outside world. Even when there was time to have the strategic discussions, the most sensitive discussions had to be weighed against “material impact” and public disclosure requirements. This is not by any means advocating against transparency or cutting corners – my point is that it inevitably factors into the decision-making process. A decision to wait for an additional assay result, explore an alternative synthesis route or find another CRO must be weighed against knowledge that certain analysts, investors and competitors might deem it a setback.

As a private biotechnology company this decision-making might simply be called getting it right before you move forward. Even good news, while always welcomed, can be a time-consuming distraction as getting the public message right often requires the input of the CMO, CSO, lawyers, CFO and CEO. The public company board of directors also has significantly different responsibilities than private companies. Thankfully, we had a great team at Idenix that could pull together in good times and bad. I was always more comfortable though when they were discovering, developing and building.

When I think back, I can count on both hands, the number of times as the CEO of Idenix that I informally asked investment bankers about the feasibility of taking Idenix private. Those conversations were usually at the end of a long day on the phone after a tough press release. We had our share of those at Idenix.

Digression over. Idenix was sold to Merck in the summer of 2014 and I joined a private biotech called RaNA Therapeutics in mid-November 2014. This is my first job at a private biotech. I stressed a bit about the press release announcing my new job but was quickly advised that we did not need to put out a press release right away and that we should wait to avoid the Thanksgiving holiday and ASCO rush. Instead of spending my early days at RaNA wordsmithing a press release, I could actually spend some time on RaNA. This period of time gave me a good head start to meet with many of our staff on a one-on-one basis to get to know them, their strengths and their perspectives on how RaNA will succeed. I was able to continue those meetings throughout December as well as get adequately prepared for my first board of directors meeting (private company note: I was chastised for wearing a suit during the scientific session of our BOD meeting – I did wear jeans on day 2). I could also spend ample time with our Chief Scientific Officer, Jim Barsoum to get fully up to speed on our programs, previous business development discussions and requirements for new lab space. Additional time with our scientific founder, board members and advisors was invaluable during my first few weeks. I was also able to spend the entire time at JP Morgan with our CSO meeting with potential collaborators and investors. I must say it did feel strange to not have 50 one-on-one meetings to discuss the potential impact on stock price from a 4 log drop in HCV viral loads but I am getting used to it. Either way, I feel like I can articulate a vision for RaNA in my early days here because of the amount of time I can be immersed in our company.

Just as I always imagined – there is significantly more time to focus on the science and internal issues in the private world. It comes at a cost though as human and financial resources are notoriously limited for many private biotechs.  It highlights the undeniable importance of having the best people and being prepared.  As a private company, we are not thinking about being public someday. That may happen but we are thinking about what it will take for RaNA to be successful today, tomorrow and for the foreseeable future. This means taking the available and precious time to get the best people, build a culture with a cohesive and entrepreneurial spirit, establish deep and strong scientific integrity and an ability to create significant value for current and future shareholders. A disciplined focus on laying this foundation will set the tone for RaNA in any setting as we move forward.

Private company CEOs have the luxury of building our companies with a careful urgency that is not hampered by public pressure. I may be early in my private company career but I plan to take full advantage of that! We can make mistakes (sometimes called science) without worrying about what the public perception (or misperception) will mean. We can get the right people in the right positions to prepare for life after being private. It should not simply be about “getting public”; it should be about being a great private biotech company that can be a strong player in the public markets should it choose to do so. The biotechnology industry has enjoyed a very welcoming IPO market over the last few years but those days will not last forever. I see this as motivation to focus on building a solid and successful private company.

Going from many years in the public biotech sector into a private situation is a bit backwards but it gives me a different perspective than the usual private to public route. I feel like I am getting a chance to help build something versus trying to explain to the Street how we are going fix something. This excitement may also just be my unique career and experience. Interestingly, I know a few biotech CEOs of recent IPOs that pine for their private days.

As they say, the grass is always greener…