Private Or Public? Not Really Even A Question In Life Sciences?
By Rob Wright
In August, I was invited to attend a NASDAQ opening bell-ringing ceremony as a guest of NeoStem (NASDAQ: NBM), which focuses on the emerging cellular therapy industry. The company was relocating from the NYSE to the NASDAQ — the world’s largest electronic stock market. Dr. Robin Smith, M.D., chairman and CEO of NeoStem, saw several benefits for making the change, including enhanced visibility to institutional shareholders. The experience got me thinking about the question many life sciences industry entrepreneurs struggle with when launching a start-up — should we go private or public? According to Punit Dhillon, president and CEO of OncoSec Medical Inc., a small publicly traded biotech, a key driver for the decision to go public is the availability of funding sources and management’s experiences and relationships.
To be sure, going public has its benefits in the forms of cash influx, recognition, and prestige. Christopher Helmrath, managing director at SC&H Capital, a CPA and management consulting firm, believes going public should be a last resort because it involves the most scrutiny. There is no doubt there are advantages to staying private — no reporting requirements, no disassociated shareholder to please, and no undue focus on short-term goals. When run properly, private companies can grow to sizes comparable to their publicly traded counterparts. Boehringer Ingelheim (BI) for example, is privately held and one of the 20 largest pharmaceutical companies in the world. The other 19, however, are all publicly traded.
If success is determined by the size of your pocketbook, it is not likely that new drug companies will be able to make a go of it as private companies, because you need a big pocketbook to bring a drug to market. Just to get one clinical trial site up and running averages $50,000. The fee paid by companies to the FDA for filing a new drug application (NDA) with clinical data is nearly $2 million, which is approximately four times the cost of conducting an IPO. In the life sciences industry, the question of being a private versus a public company seems to be less a question of if you go public, and more a question of when. For some, that when is now.
This past July, billionaire Randall Kirk filed papers with the SEC for an IPO for his most recent biotech venture, Intrexon, which is to be listed on the NYSE under the trading symbol XON. Kirk is not alone in seeing the benefit of going public. According to the National Venture Capital Association (NVCA), 21 IPOs were conducted in the second quarter of 2013, raising more than $2.1 billion. This is more than double the volume and dollars compared to the previous quarter’s eight IPOs totaling $716.9 million. The second quarter also saw the highest number of biotechnology venture-backed IPOs since the third quarter of 2000. What does this mean? According to William Slattery, a partner at Deerfield Management, a New York-based healthcare investment management firm, it means investors can have more confidence in the potential of biotech today than in 2000, as there is improved understanding of the molecular underpinnings of disease. It also means if you are currently private, best brush up on your knowledge on going public, as well as emerging investment options like those highlighted in Wayne Koberstein’s article on page 24 featuring VC veteran Art Pappas.