Groupon: The IPO With More Sizzle, and Money, Than the Entire Biotech IPO Class of 2011

11/7/11Follow @xconomy

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companies like Plexxikon (Zelboraf), Pfizer (Xalkori), Vertex Pharmaceuticals (Incivek and ivacaftor), Medivation (MDV3100), Human Genome Sciences (Benlysta), Onyx Pharmaceuticals (carfilzomib and regorafenib), Exelixis (cabozantinib), Optimer Pharmaceuticals (Dificid), Genentech (T-DM1), and Seattle Genetics (Adcetris).

There are a few brave souls seeking to test the IPO market. One company, Boulder, CO-based Clovis Oncology, is on the schedule to go public next week at $13 to $15 a share. The only thing that gives this company a realistic shot at an IPO is the fact that its management team previously ran Pharmion, which made investors a lot of money when it was acquired by Celgene in 2007 for $2.9 billion. I’d say that one has a decent chance to raise the most money of any biotech company in 2011.

But one company isn’t enough to make the market work well for biotech. An even better test of the market will be with Cambridge, MA-based Verastem. This company, just 15 months old and with just two rounds of venture capital to its name, surprised just about everybody last week when it filed to go public with a $50 million offering.

Verastem looks like something from the early ’80s or early ’90s biotech waves. It’s got big-name scientific founders (Bob Weinberg and Eric Lander of MIT), a compelling technology idea for attacking cancer stem cells, and a CEO who made people a lot of money by taking his last company public and selling it to GlaxoSmithKline for more than $700 million (Christoph Westphal). Verastem has a decent amount of cash, $41 million, but what it doesn’t have is an iota of proof from any drug candidates that have been tested in human beings. This is truly an audacious offering. As I said on Twitter after filing the first news story: “I can’t see how Verastem pulls this off. If they do, what will a quarterly report look like? We shrank rat tumors?”

There was once a time when companies with little more evidence to go on than Verastem were able to go public, and keep raising money for years on little more than hype and hope. It’s possible that investors could get psyched up again about cutting-edge science, but I would be shocked if they do. I was really surprised a couple weeks ago when Matt Perry, a portfolio manager with Biotechnology Value Fund in San Francisco, told people at the BIO Investor Forum that he likes some of the groundbreaking scientific ventures that have gotten VC backing the last few years, and he thinks the public markets are hungry for this kind of company again.

Nothing I’ve seen so far in 2011 really suggests that public investors have gotten the appetite back for innovative biotechs. I hope Perry is right about 2012, because if he’s not, we’ll probably still be throwing funny money at companies like Groupon, and wondering 10 years from now why there’s so little innovation in healthcare.

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  • naostring

    When companies with flawed business models, such as Complete Genomics, float an IPO and then a secondary, only to crash afterwards, that hurts the entire sector. How can public investors navigate a highly technical sector, if they are being served $hitsandwiches, such as $Gnom… Who do they trust?

  • Oren

    They should trust the team. Reputation and credibility of the management team should be a major factor to determine wether they should invest or not. This also goes for investing in early stage companies.

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