Which VCs Are Poised to Cash In On the Biotech IPOs of 2012?

Xconomy National — 

There’s a story going on in biotech venture capital, and it’s about a slow and painful death. Four years after the start of the Great Recession, and after a decade of too much promising and too little delivering, the majority of biotech VCs are struggling to stay afloat. Firms are shutting their doors, forcing partners out in brutal political battles, or quietly fading away as they fail to raise new funds.

This ongoing theme resurfaced in the past week, when I wrote about the demise of Kirkland, WA-based OVP Venture Partners, the $750 million venture fund that has been betting on high tech, biotech, and cleantech companies for 30 years. This firm, like many others, waited and waited for a home run to save its portfolio, but it never happened. For OVP, Mountain View, CA-based Complete Genomics (NASDAQ:GNOM) was the one that just never came through in the clutch.

Everyone in biotech venture capital knows other shoes about to drop like this. The VC industry has already contracted dramatically, as there were 1,022 active firms during the tech bubble year of 2000, and just 462 active firms were left in 2010, according to the National Venture Capital Association. The dropoff in biotech venture financing this year has been so dramatic that only about a dozen firms in the U.S. are left who can credibly claim that they are still active early-stage life science investors. The collapse of biotech venture capital has forced a generation of entrepreneurs to re-think exactly how to build biotech companies that can have more appeal to investors.

Bob More, a general partner with Frazier Healthcare Ventures, says he expects one-half to two-thirds of all the people who make a living in biotech venture capital are on their way out. “A lot of firms are teetering,” he says.

Bob More of Frazier Healthcare Ventures

Naturally, a few firms will survive this historic contraction, and come out the other end quite strong. There is still plenty of great science happening. Some encouraging signs have come out of the FDA lately. The NASDAQ Biotech Index is up 36 percent year-to-date, more than double the 15 percent rise in the broader NASDAQ Composite. The venture investors who survive this tough stretch will surely be well positioned for years to cherry-pick the best company ideas.

So when a couple of biotech IPOs were completed last week, I was eager to dig into the filings with the Securities and Exchange Commission to get a read on which VCs stand to gain. The IPOs were for Calabasas, CA-based Kythera Biopharmaceuticals (NASDAQ: KYTH) and New York-based Intercept Pharmaceuticals (NASDAQ: ICPT). These stocks both traded up significantly from their IPO price. Now that those two companies have joined the club, a healthy 11 of the 12 biotech IPOs this year have gone up, as of Friday’s close. The total number of IPOs so far this year already equals the number of IPOs in all of 2011.

Before diving into the table below of biotech’s 2012 IPOs, a few of the usual caveats are in order. Just because a VC firm invested in a company that went public doesn’t necessarily mean it will make money. Pre-IPO investors typically are barred from selling their shares for six months, a regulation that’s intended to prevent insiders from pumping and dumping shares on investors with less information on the company. Sometimes companies can thrive during the period when insiders are “locked up” (i.e. Complete Genomics) and then crash right before the VCs get the freedom to cash out. And sometimes VCs will keep their shares for years in a public portfolio company, holding out for what they think will be even bigger returns.

That said, here’s a tale of the tape for biotech IPOs of 2012, with a list of their biggest shareholders prior to their IPO, according to regulatory filings with the Securities and Exchange Commission.

CompanyLocationIPO PriceLast CloseMajor Pre-IPO Investors
Merrimack PharmaceuticalsCambridge, MA$7$7.48Fidelity Investments, Credit Suisse First Boston, Fred Alger Management, TPG-Axon Partners
ChemoCentryxMountain View, CA$10$10.80Glaxo Group, Techne, OrbiMed Advisors, HBM Bioventures, Alta Partners, HealthCap of Sweden
CempraChapel Hill, NC$6$7.34I. Wistar Morris & affiliates, Intersouth Partners, Aisling Capital, Quaker Bioventures, Blackboard Ventures, Devon Park Bioventures
VerastemCambridge, MA$10$8.68Advanced Technology Ventures, Bessemer Venture Partners, CHP, Longwood Fund, MPM Bioventures
Supernus PharmaceuticalsRockville, MD$5$12.88New Enterprise Associates, OrbiMed Advisors, Abingworth Ventures, Shire
Durata TherapeuticsMorristown, NJ$9$9.47Domain Associates, New Leaf Ventures, Aisling Capital, Sofinnova Ventures
Hyperion TherapeuticsSouth SF$10$10.53Bay City Capital, Highland Capital Partners, Panorama Capital, Sofinnova Ventures, New Enterprise Associates, Ucyclyd Pharma
TesaroWaltham, MA$13.50$15.02New Enterprise Associates, InterWest Partners, Kleiner Perkins Caufield & Byers
Globus MedicalAudobon, PA$12$17.63Clarus Life Sciences, Goldman Sachs
Regulus TherapeuticsSan Diego$4$4.21Isis Pharmaceuticals, Alnylam Pharmaceuticals, Aventis Holdings, Glaxo Group
Intercept PharmaceuticalsNew York$15$19.05Genextra, OrbiMed Advisors
Kythera BiopharmaceuticalsCalabasas, CA$16$19.10Versant Ventures, Arch Venture Partners, Prospect Venture Partners, Jafco, Fidelity
–Source: Securities and Exchange Commission filings, Yahoo Finance

You can see there’s a pattern here—New Enterprise Associates, OrbiMed Advisors, and Sofinnova Ventures are a few of the names that show up more than once. These funds have all raised big new funds for life sciences in the tougher financing era, post-2008. They’ll be fine.

With many of the others, you can bet … Next Page »

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One response to “Which VCs Are Poised to Cash In On the Biotech IPOs of 2012?”

  1. Mansour Bassiri says:

    It was an informative article, thank you!