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Coelacanths And Other IPO Thoughts Before The Autumn Markets Return

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public from the years 2005 to 2007, six were in Phase 1 or earlier with their lead product in the run-up to their IPOs. (Remember Cambridge, MA-based Sirtris Pharmaceuticals? Its investors certainly do. It went public then was bought by GlaxoSmithKline (NYSE: GSK) in 2008 for $720 million. GSK might not look back so fondly; it shut down the Sirtris research group and moved its work to Pennsylvania in 2013.)

The more public-side appetite for earlier, riskier biotech companies, the better for the industry—and for society. That’s an odd leap to make, perhaps, but those early-stage IPOs will hopefully encourage VCs, in turn, to back the cutting-edge science that leads to those IPOs. A few VCs need no persuasion. Atlas Venture, Third Rock Ventures, ARCH Venture Partners, Polaris Partners, Flagship Ventures, Avalon Ventures, and a handful of others are committed to early-stage bets and have the cash to make a difference.

Will VCs that have migrated to later-stage, less risky assets rejoin the early-stage battle? Might new funds dedicated to taking big biotech risks start from scratch? An acquisition appetite among big drug companies would help. But privately backed biotechs aren’t a big M&A target these days. (There have been only nine deals over $75 million upfront this year, and 13 deals last year, according to Silicon Valley Bank.) Of course, another reason to take more early-stage risks would be to go public in short order to reap returns and satisfy limited partners. The shining example of the recent class has to be Agios Pharmaceuticals (NASDAQ: AGIO), one of only three since the start of 2013 to start its IPO process as a preclinical company. It went from Series A to IPO in five years and is now officially what the tech investment crowd calls a “unicorn”—a venture-backed company with a billion-dollar market valuation.

Come to think of it, let’s leave that term to the tech people. Unicorns aren’t rare; they’re non-existent. Biotechs, being the home of disciplined scientists (we hope), should have a more reality-based buzzword. From here on out, billion-dollar biotechs are snow leopards, and the preclinical ones that manage an IPO are coelacanths—so rare that people once thought they only existed millions of years ago. Including Agios, there have been three since 2013; if we see a few more in the next few months, perhaps it’s a sign that the window won’t close anytime soon. (Or a sign that “coelacanth” isn’t the right term.)

If you have other ideas, tweet them to me with your bare toes. Just don’t get sand in your iPhone.

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