Seeing Beyond the IPO Window Dressing
In his Life Sci VC blog, Bruce Booth recently wrote “Biotech is back with a vengeance in this IPO window.” It’s an accurate snapshot of the market, but the good times he describes accrue to money and sweat equity already long in the ground. In a business with a 10- to 15-year product development cycle, today’s investors and managers need to focus on the strategic implications of the market. So is this a flash-in-the-pan or a fundamental change in the life-sciences landscape?
In his post, “What’s Behind The Booming Biotech IPO Market,” Booth identified four factors that are influencing the market: The return of the generalist investor; the performance of recent offerings; large amounts of capital pumped into a small sector by pharma acquisitions (what he refers to as ‘recycle scarcity); and the positive effects of the JOBS act.
Though correct as far as his analysis goes, Bruce misses the heart of matter. The first two factors he cites are the result of the market window, rather than the cause. The third is a manifestation of a larger liquidity phenomenon that I will discuss below. The JOBS Act, while helpful, is not driving the burst of prosperity that we see in the market today.
Biotech “windows” generally correlate with expansions in the money supply. The last three windows—in 1991, 1996, and 2000—occurred in periods of expansive monetary policy, not surprisingly in sync with presidential election years. (Does anyone really believe that the Fed is apolitical?)
Today Ben Bernanke is printing money at the rate of a trillion dollars a year. It has to go somewhere. First it goes to … Next Page »