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The product, linaclotide, has made it possible for Ironwood to raise more than $300 million since it was founded in 1998. The company still had $98 million in cash in the bank at the end of September, so it’s not doing an IPO because it needs more cash to keep the doors open. The company is led by CEO Peter Hecht, a former scientist at the Whitehead Institute for Biomedical Research in Cambridge, MA, and one of its newest directors is David Ebersman, the highly regarded former chief financial officer of Genentech. Wall Street’s big name underwriters are lined up behind Ironwood—JP Morgan Securities, Morgan Stanley, Credit Suisse, Bank of America/Merrill Lynch, and Wedbush PacGrow Life Sciences.
“This is going to be a large, liquid stock from the beginning, and that right there makes it different from a lot of others,” Pops says.
The more typical kind of biotech IPO would be for a company with an exciting platform technology, and products that face far more risks ahead than Ironwood, Pops says. That kind of company is more likely to command a $300 million to $400 million market capitalization, not $1.5 billion, he says.
Many venture capitalists, even though they know their portfolio companies don’t have the same kind of profile as Ironwood, are drawing up their IPO prospectuses based on the assumption that Ironwood will pry open the window of opportunity, says Doug Fambrough, a general partner with Oxford Bioscience Partners in Cambridge. One reason is the sense that Ironwood might be one of those rare opportunities that has crossover appeal into the wider world of investors who control a lot of capital, but don’t normally get involved in the life sciences.
“It’s widely expected to draw general investors who otherwise won’t play in the biotech space,” Fambrough says, noting that if Ironwood does well, the generalists might look for more opportunities like it. And that would help guys like him. “If Ironwood performs well, that will affect the mood of investors in the more specialized biotech community,” Fambrough says.
Of course, if Ironwood flops, it could throw a lot of cold water on all this optimism. “If [Ironwood] goes public at $9, it will suggest the valuation pressure is more intense than everybody thought, and if Ironwood can’t justify a $1 billion valuation, then it’s really open season on valuations,” Fambrough says. “It will be hard to see how an Aveo Pharmaceuticals can get an aggressive valuation if Ironwood can’t.”
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