Biotech Gets A Flat

The life sciences sectors fails to muster a single IPO in the second quarter.

BY DANIEL S. LEVINE
The Journal of Life Sciences

In the halls of the San Diego Convention Center during the BIO 2008 conference last month I ran into an investment banker I know who specializes in the life sciences. When I asked him about the outlook for IPOs this year, his brow bent downward, his eyes rolled skyward and his mouth blew an exasperated gush out of one corner that sounded a lot like air coming out of a tire.

It was an apt sound. If you haven’t noticed, the tire’s gone flat.

Burrill & Company, the parent of The Journal, noted earlier this week that there were no U.S.-based IPOs in the life sciences during the second quarter of 2008. That follows the rather grim first quarter in which only three deals raised a total of $138 million through IPOs. BioHeart, the one biotech in the bunch, raised a mere $6 million.

The IPO window – a notion that had been fading within the biotech arena – appears to be back and it’s closed. While there have been some drivers within the sector to weaken Wall Street’s appetite for biotech IPOs – such as the aftermarket performance of deals in recent years, risk-averse investors, and a cautious FDA – the housing meltdown, skyrocketing oil prices and the credit crunch are taking their toll in the IPO world well beyond the life sciences.

In fact, the National Venture Capital Association and Thomson Reuters reported this week that for the first time since 1978 there were no venture-backed IPO in the second quarter of 2008 according to their Exit Poll report.

But if you can’t exit through the window, there’s always the door. Biotech companies have long used alternative means of financing. The reality of expiring patents and the need to bolster pipelines continues to fuel robust partnering deals. M&A continues to provide an exit to investors whose portfolio companies are unable to avail themselves of the public market.

Though it’s nice to have choices, GlaxoSmtihKline’s $720 million acquisition of Sirtris Pharmaceuticals shows there are still alternatives to the IPO market for privately-held companies, the quarter was characterized by much bigger deals including Invitrogen’s plans to purchase Applied Biosystems for $6.7 billion, Daiichi’s acquisition of Ranbaxy for $4.6 billion, and Takeda’s purchase of Millennium for $8.8 billion.

As for the investment banker I ran into in the halls of the San Diego Convention Center, he managed to chuckle when we talked about the dismal IPO market. He doesn’t expect to see a change this year and said he believed it would be well into 2009 before the IPO market starts up again for the life sciences.

But he didn’t seem too concerned. That’s because he seems to be keeping plenty busy with M&A deals.