Biotech investors declare it’s never too early to plan an exit
It’s never too early to plan an exit strategy. Panelists at the Biotech Showcase™ 2012 luncheon plenary session Monday all agreed that, although that strategy may include an IPO, exit planning should include other strategies as well.
Redefining Exit Options Panel, Biotech Showcase™ 2012
In today’s financial climate, that often means mergers and acquisitions rather than IPOs. “M&As will be the dominant exit strategy for most of our firms,” according to Gaurav Aggarwal, Partner at Panorama Capital. He advised taking a long term view of when the potential investor—often a pharmaceutical company—will be ready to consider a deal. “Plant the seeds 18 to 24 months before you think you’re ready to exit. Most acquisitions take one year from the initial point of contact to a closed deal,” he said. That long lead-up time gives both organizations time to consider their options and the scientific and cultural fit. It also allows the biotech to begin to adjust its interests to those of potential suitors.
As Jonathan MacQuitty, Partner at Abingworth Management reiterated, “Build relationships with the companies most likely to acquire your organization early, especially on the research side. It’s also smart to talk with multiple contacts at the target company and with multiple companies, to increase interest and thereby get a better price for the company.”
There is no standard template for acquisitions. “At J&J, we have a blank slate regarding how we structure a deal,” stated Mark Barrett, Senior Director f Business Development. However, for many biotechs that becomes a moot point.
“Big pharma M&As aren’t that common,” observed Stephen Dunn, President and Senior Managing Director of Research, LifeTech Capital. VC funds, he added, are increasingly interested in single product companies as a way to reduce their own risk. For biotechs, that can be a perilous position if the VC fund fails to supply follow-on capital.
Consequently, companies need robust backup plans, and they need to implement them early. Rather than seek a big M&A, some funds are engaged in portfolio remediation. For example, Dunn said, “We’re trying to marry small companies and then do a public offering. Or, we may take three compatible portfolios, select a lead candidate, combine the companies and do a reverse merger or make advances to mid tier companies.”
Biotech companies often mention grants as funding mechanisms, but they come with a price, Dunn cautioned. “You may cede control of the project. If their goals are not part of your core strategy, the grant work depletes your time and energy.”
Sometimes the difference between a successful company and a failure is as simple as having the right management team. According to Benjamin Perkins, Senior Managing Director in the healthcare practice of Ernst & Young, “Potential investors look at your resume to see whether you’ve accomplished what you’ve planned. If you’re lacking management with that record, get board members who have it.”
What the future holds, in terms of financing, is anyone’s guess, the panelists agreed. The biotech companies that succeed are those that plan early for a variety of exit contingencies.
View the full session here:
© 2012 EBD Group AG
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