our strategy of moving straight into genetically-defined patient populations, and really focused on how we identified those patients. The other, which might include pension funds or general investment funds, were more the generalists who invest in healthcare, but might invest in other sectors in the industry as well. They were interested in what value-creating events there were going to be over the coming year or so.
X: What did you hear during the road show that made you confident the IPO would be a success?
RG: During our second and third meetings with analysts and investors, those people would start telling our own story back to us in our own words. When we got to that point, we realized that people had internalized, and really bought into, our research and clinical strategy.
JR: And I think very importantly, they understood the vision that we had for the business. You don’t have to go back very many years ago—biotechs weren’t actually talking about building companies and commercializing products. That aspect of our vision really resonated with people. And that’s what we were hearing back from the investors over time.
X: What are some of the things you learned about running a road show?
RG: People should not underestimate the length of the day or the [importance of] eating every chance that they get—you need to keep your energy up. One of the guys we were talking with last month who was with us on the road show commented on the number of PowerBars that we kept on hand so we could always just keep our energy at all times. Also, you need to charge your cell phone every chance you get.
JR: The three ingredients for a successful IPO may be a year’s worth of pre-[IPO] investor meetings, a lot of PowerBars, and iPhones, if we had to reduce it to a really simple recipe.
X: With the road show done, what goes in to pricing an offering?
JR: You begin thinking about valuation before you engage in the IPO process. But when you select banks, you begin to have discussions about what a reasonable valuation range could be that actually reflects the value of your company and its assets. And one of the benefits of the JOBS Act is your ability to have these “test the waters” meetings, so post-filing, you’re actually able to engage in discussions with investors in a way that you couldn’t [before]. You’re not offering securities yet, because you don’t have a prospectus, but you are able to have discussions around comparable companies and frameworks. You really begin to get a sense of where the market could be for the security that you’re ultimately offering. Then, as you go through the process you eventually put a price range on your [IPO], people put orders in throughout the road show. You can see what size order each investor has put in, and they’ll often give price information. Sometimes that [information will] be that they’ll buy a certain volume at a certain price. Sometimes they’ll say they’ll take a certain volume at any price range, so people put different parameters around it. And you look at that together, and you look at that relative to the market conditions as well, and you make a decision about where to price.
X: Why did you ultimately decide to price where you did?
JR: We thought the valuation at the top of the range was appropriate for us, and we also thought it was the right thing to do relative to the broader market. You certainly don’t want to be a company that kind of damages the IPO market for our other peer companies that are coming along afterwards.
X: What was your strategy for both timing, and carrying out your IPO?
JR: We went into the IPO with $85 million in cash—we were very well funded. So it wasn’t an acute financing event for us, but it was driven by the recognition that we would need access to the capital markets to build the kind of leading, independent biopharmaceutical company that we are building that will ultimately commercialize [products] itself. We [also] have some important clinical data that could come out towards the end of this year, and then next year as well. So we made the deliberate decision to go public ahead of that next wave of data in order to already be public at the time, and we actually even had a relatively small IPO for that reason. We only sold about 21 percent of the company, which is more or less the least amount of dilution anyone’s taken over the past few years in an IPO.
X: When you saw your stock more than double from that opening price the day after, did you feel you undervalued the company?
JR: We obviously care a lot about valuation, and our venture investors care a lot about valuation, but at the end of the day, you’re not trying to optimize on the margin around price. You’re trying to have an offering that brings in the right set of investors who are committed to the company and who can continue to participate as partners in our financing strategy going forward. It’s very hard to predict prices in the short-term, and it’s probably not where any of us have our focus.
X: In hindsight, any advice for those biotechs readying an IPO of their own?
JR: You have to have tremendous clarity around your strategy in order to be credible with public market investors. That’s really a necessary pre-condition. And you have to begin the process much, much earlier than you might otherwise think you would need to.
RG: You also have a company to run, so if you’re jamming it all in at the last minute, there’s something else that’s not happening. And by starting early, you provide investors the opportunity to see your company advancing, while giving yourself the opportunity to balance those meetings with running the company.
