Seeing Beyond the IPO Window Dressing

10/2/13

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 »

Standish Fleming is a co-founder of San Diego’s Forward Ventures, and a 24-year veteran of early-stage, life sciences investing. He has helped raise and manage six venture funds totaling more than $500 million and served on the boards of 19 venture-backed companies, including Nereus Pharmaceuticals, Ambit Biosciences, Triangle Pharmaceuticals (acquired by Gilead Sciences) and Actigen/Corixa (now part of GSK). Follow @

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  • http://www.hollyip.com/ Suleman Ali

    One wonders what the investor community really thinks of biotech. They seem to have been pessimistic about it for so long, and then have rushed back to it in droves. Whilst on the whole it fails to deliver, it still seems to hold the promise of occasional huge returns that keep it on the radar of a lot of finance people.

    • StanFleming

      Experienced, long-term investors, like the institutions that invest in life-sciences venture funds, aren’t likely to be misled by a momentary bubble. While the few firms with institutional followings will strengthen those relationships by returning cash to their investors, new money is unlikely to flow into bio-venture until we have something new to offer.

  • Revis

    Still, it is pretty entertaining to see everyone rushing to file their S-1′s while the equity market lets them, especially all these development stage companies. The I-bankers/bookrunners are still able to drum up enough demand (that’s how easy it is right now). Wonder if it is just institutional apathy since they haven’t touched biotech in awhile? It has been a long time since numerous early stage bio-investors actually had their liquidity event through an IPO. I believe the entire Third Rock Ventures portfolio has gotten the memo and gone public, no matter the stage (just kidding, not all).