What Does It Take to Swing the IPO Window Open for Biotechs? – Suggestions include selling at a discount at a time when there is a rising investor fan-base for social media.

June 22, 2011  source: Genetic Engineering and Biotechnology News

On June 10, a day after withdrawing an $86 million IPO filed in November 2010, Ambit Biosciences reported securing $30 million in Series D-2 equity financing. “The terms currently obtainable in the public marketplace are not sufficiently attractive to the registrant to warrant proceeding with the public offering,” Ambit CFO Alan Fuhrman said in an SEC filing.

The company’s about-face caps about a year of decidedly mixed news on the biotech IPO front. In interviews earlier this month, four market watchers said they expect trends to stay mixed for new biotech stocks through the rest of the year. They note that the roller-coaster market is in the throes of another downslide.

The fact is that biotech companies continue to face rising costs for developing treatments and diagnostics and then bringing them to market. As a result, the analysts agreed, investors are much more apt to judge biotech stocks based on individual results, rather than flocking to life science stocks in general, the way many have embraced sexier social media IPOs in recent months.

“The IPO market is open for biotech firms if the company is prepared to offer discount valuations to the buy side IPO investors,” John Steuart, managing director of Claremont Creek Ventures in Oakland, CA, pointed out to GEN. “Aftermarket performance is respectable, meaning the access to capital on a secondary offering at better prices down the road makes the discount more palatable.”

Consider Other Options Simultaneously

As for Ambit’s withdrawal, Steuart said he doesn’t see it as harbinger of another biotech retreat from the IPO market. Because of the uncertainty and long time lines of an IPO process, he said, companies often run a dual process seeking a private equity or strategic deal at the same time that the S-1 filing is in process. Sometimes an acquisition offer looks more tempting, Steuart added.

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