“crossover” investing, where public-oriented funds invest in late-stage private companies, helping to build bridge to the public markets (eg, Agios, Intarcia).
I’ve just been through this kind of decision twice, first with Adnexus, which was acquired by Bristol-Myers Squibb in 2007 when we were on the cusp of our IPO, and then with Avila Therapeutics, acquired by Celgene early in 2012.
In each case, it was a combination of several factors that resulted in a decision to sell the company. I believe that each of those companies could have “gone long” – we had the science, the people, and enough capital to get to the next step. But the M&A path was a very exciting path forward in each case.
Valuation is a big driver in these situations, but it’s not the only one. For both Avila and Adnexus, we knew our drug candidates had an equal if not better opportunity to advance in the context of a larger company than in the highly capital constrained environment of a small company. The acquirers offered a good cultural fit, and there was respect & friendship across the organizations. Our investors did also get a good return – they took significant risks early on, and providing returns (especially in a tough financial environment) also built confidence to continue investing in the next young biotech company.
M&A wasn’t the “strategy” in either case – it was a compelling option that presented itself along the way and was one among several choices.
So – back to the original question: Can (should?) a young company “go long”?
In a word, yes.
In fact I think that’s the only real strategy. At Avila, I was often asked the inherently unanswerable question “are you guys going to try to get acquired or stay independent?” I always found this to be a perplexing question, because to say our goal is either “building an independent company” or “being a FIPCO” or “being acquired” focused on an outcome rather than on the goal of creating value.
The one thing a company has control over is building value…and that includes building value in a way that also allows investors to realize a return. That’s not the sole objective, but for young biotechs, attracting capital (equity, deals, etc.) is an enabler of our vision. To attract it, we also need to meet the needs of those funders.
Acquisition is not a strategy or a vision or a plan…but sometimes it’s an outcome. It’s something that can happen to you while you’re busy building value. Companies of all sizes can face this issue. Think of Genzyme, Wyeth, Pharmion, ImClone Systems, MedImmune, and Biogen Idec in recent years.
For a young biotech company, I view “going long” as planning for and figuring out what it will take to get one or more new medicines approved and successfully introduced onto the market (which includes successfully reimbursed). That plan necessarily needs to take into account a realistic view of what capital sources can be accessed to execute that plan.
When Avila signed the merger agreement with Celgene this past January, the word that each of my Board members used was “bittersweet.” Not because there were any concerns about Celgene – on the contrary, we felt very strongly that there was excellent fit and we trusted and respected the Celgene team. We were very excited about that future and we chose it among several other strong options that we had developed. But we also knew that it meant letting go of the other paths – and you can never do the “control experiment” and find out what might have happened if we had continued to build Avila as an independent company.
But we always planned to go long. And the new medicines still will.
