Peter Hecht is finally able to speak to the press about Ironwood Pharmaceuticals‘s landmark initial public offering, breaking the silence he was required to keep until last week to comply with quiet-period rules. And the CEO of Cambridge, MA-based Ironwood gave Xconomy a front-row perspective on the most talked about biotech IPO in recent history.
Ironwood (NASDAQ:IRWD), based on the promise of its lead drug linaclotide for chronic constipation, raised $203 million in its maiden public offering last month—a rare feat for biotechs nowadays, in light of public investors’ general aversion to the risky deals. The question of how Ironwood succeeded where many previous biotechs attempting IPOs have failed is likely to be discussed in industry circles and business schools for years.
Hecht shed some light on that big question during an hour-long interview yesterday afternoon. The founding chief executive of Ironwood began by hitting some familiar notes on his management philosophy, mainly that his firm has taken a long-term view on the biotech business and works first in the interest of its investors. While those may sound like the cornerstones of any business strategy, the way Hecht and his team have put them into practice over the past dozen years have made Ironwood into one of only a handful of Massachusetts-based biotechs worth more than $1 billion.
According to Hecht, Ironwood was fortunate to have already met many of the major institutional investors focused on healthcare before it launched the road show for its first public offering last year. This meant that some of the investors were already well acquainted with the company before hearing Hecht and his colleagues’ IPO pitch. Also, four of the large public equities buyers that participated in the firm’s IPO were previous investors in the company, which had raised more than $300 million in private financings before filing papers in November 2009 to go public. “They knew what they were getting into,” Hecht says.
Ironwood’s ability as a private company to raise money from traditionally public investment outfits—including Ridgeback Capital, Morgan Stanley Investment Management, Jennison, Maverick Capital, and Invus—helped the firm support its operations for the past five years without having to do an IPO. (Fidelity Biosciences, Polaris Venture Partners, and Venrock Associates were venture backers of Ironwood.) As Hecht notes, the company probably wouldn’t have been able to raise as much as it did in its IPO without the support of those investors as it advanced linaclotide to its current pivotal phase. During the past three years, the firm has also found partners to help commercialize linaclotide around the world: New York-based Forest Laboratories (U.S.); Spain’s Laboratorios Almirall (Europe); and Japanese drug-maker Astellas Pharma (Asia).
Indeed, the main attraction to Ironwood is linaclotide, which was the subject of utmost interest to investors during the firm’s IPO road show. The firm reported late last year that the drug passed two pivotal trials as a treatment for chronic constipation, and in the second half of this year the company is expected to deliver results of two more pivotal trials of the drug for treating constipation relate to irritable bowel syndrome. The company has estimated that up to 46 million Americans suffer from these conditions, and existing treatments haven’t been able to fully alleviate the abdominal pain and other symptoms these people experience. So the market for the firm’s experimental drug is significant.
“Back in July of last year when we started thinking about doing this [IPO], there was a general sense that this was a very good window of opportunity with respect to where the drug was in clinical development,” Hecht says, “[the IPO] would afford us a very good opportunity to communicate effectively [and] to add to shareholders that we already had.”
One of the company’s big priorities during the IPO process was to find new backers that were committed to hanging onto their shares long enough for the company to achieve some of its goals over the next five years, Hecht says. (Investors that trade in and out of biotech firms’ stocks in a hunt for quick returns can hurt those companies’ share values and limit their ability to raise more funds.) The IPO also boosted the company’s cash stockpile to $320 million, he says, enough to fund the company for another five years.
Still, Ironwood had to overcome a hurdle or two en route to its public debut. After testing investors’ appetites with a proposed price range for the IPO of $14 to $16 per share in January, the company later reduced those expectations and ultimately priced the IPO at $11.25 per share last month. Hecht says that the hitting the proposed $14-$16 per share pricing target was less important to him than finding new long-term investors.
“We could have set a lower expected [price] range, and maybe that would have led to more excitement about the IPO, and maybe if we had priced it low enough the stock would have popped,” Hecht says. “But that wasn’t our goal.”
To Ironwood’s credit, its stock price has been trending upward since its shares debuted last month and closed yesterday at $14.49—a 28.8-percent increase from its initial $11.25 price.
We’ll see where the stock price is after Ironwood’s next big data event—the release of the results of the pivotal trials in patients with irritable bowel syndrome later this year. Investors have now bet more than half a billion dollars that the company will succeed.
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