depending on which large company you’re talking about.
Robert Hoffman: For Arena and generally for biotechs, I think there was a benefit. If you had late stage assets, Pharma would pay up for them. Some companies are still struggling with the patent cliff, like AstraZeneca and Eli Lilly.
Lou Arcudi: [Pharmas were] trying to protect big markets or indications like oncology or hyperlipidemia. Now you’re seeing a refocus of energy on specific parts of those markets, to the benefit of a lot of biotech companies. We can now focus on certain indications within those broader areas and really prosper. Idera’s focus is rare B-cell lymphoma diseases. We’re not so much focused on partnerships, we’re focused on trying to deliver pinpoint to that patient population. This does give smaller companies doing orphan and breakthrough indications the opportunity to take [those drugs] to market themselves without relying on Big Pharma to fund those type of operations.
X: How does the influx of smaller biotechs onto the public market affect M&A conditions?
RH: I think it’s better because they have to disclose more information. If you’re private, there’s not necessarily a compelling reason to disclose good data in Phase 1, Phase 2, or further along. If you’re public you have to disclose information along the way. It’s much more transparent.
SK: That’s a great point.
X: Or to play devil’s advocate: perhaps the less transparency there is, the more competitive advantage the acquirer would have in picking up that program.
RH: I think it depends on the management team in place and whether they’re looking to partner. If Big Pharma calls on you and you’re not interested in taking a meeting because you’re moving the program independently and you have funding, then you’re not going to [disclose] much about it.
X: Among the total pool of investors, VCs are in shorter supply on the private side. But crossovers [who usually invest in public companies] are coming in to help on mezzanine rounds, while some VCs are now investing on the public side. Does it make your jobs more complicated to have these fluid definitions of which side an investor might be on?
EA: As a private company evaluating the public markets, I see crossover investors being beneficial. Now that we’re out talking to pure public and crossover investors, the key if you’re going to take crossover investors is to find a group that will help facilitate the IPO. The cash in buys you a little more time and you can keep building value before you go public, but also you’d like a group that will help facilitate the IPO. Some will stick with you longer, too. [Editor’s note: Albini’s company Sutro Biopharma closed a $26 million Series D round in December 2013 led by existing investors Alta Partners, Amgen Ventures, Celgene, Lilly Ventures, Skyline Ventures and SV Life Sciences.]
X: Once a biotech is public, what does that investor composition mean to its strategy?
SK: [PTC] closed a $65 million private round in February last year then went public four months later. Getting true crossover investors into a private round is tough and very story-specific. There are only a handful who will lead that mezzanine deal then bring in his group of buddies who trust him in terms of the level of diligence. The level of diligence, the credibility with public market guys: that’s immensely beneficial if you can get it done. They then cover your IPO at least 1x, or more hopefully. Even in a bad market your deal will get done, and it will get done no worse than flat to the post-money valuation on your final private round. They want to support it where they bought it. If companies can get the mezzanine done with true crossovers, it’s a good thing. But not everyone can get them.
X: In other words, it’s not just about having crossovers in the round, but having one as the standard-bearer.
SK: Once you get the lead, he’ll negotiate the term sheet and set the pricing on the private round. Everyone else will
