Luke Timmerman wrote this nice piece in Xconomy today talking about how the biotech industry needs to get away from IPOs as a potential funding mechanism and work with new risk-sharing/partnering models. The article uses Plexxikon's experience as a case study of sorts.
Last week, Plexxikon agreed to be acquired by Daiichi Sankyo for $805 M upfront plus up to another $130 M in milestones. And they were able to accomplish this after having raised only $67 M in funding over the years to establish its technology. According to Plexxicon's CEO, Peter Hirth, the company had relatively few means of cashing out as the IPO market was dead to them -- certainly at this type of $900 M+ price.
Timmerman's point? If this was true of Plexxikon, a company with something of real value to sell, what are the prospects for other biotechs? The answer slim and none when it comes to the old IPO model for cashing out. There will be no other Genentech's and Amgen's coming through this mechanism.
Rather, something like the Plexxikon model is more likely to take over. Namely, Plexxikon has established a means to gain an in depth understanding of the targets it pursues, crafts a drug to work with that target, and also develops a companion diagnostic to select those patients who are most likely to respond favorably to its new therapy. In other words, they really understand the biology of the disease and science they are pursuing.
Plexxikon was then able to take its science to partners to develop into therapies. The deals generated cash flow and funded further development. Plexxikon had to give up some of the ownership of the projects but also gained partners to share the risk. The company was then able to stick to its area of expertise which was drug discovery and development -- and didn't need to develo expertise in all the other functional areas and their associated costs.
"We'd rather own 20 percent of a given product, not vertically integrate, and license it away at a value inflection point," says Hirth, "the industry really needs to rethink itself. Most of the people are living 20 years in the past, and don't realize that they need to change."
It's change or become extinct.
Posted by Bruce Lehr March 7th 2011.