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Blurred Lines: Investors Explain Their Re-Thinking of Traditional Private-Only or Public-Only Investment Strategies

October 8, 2014
The recent expansion and acceleration of the biotech stock market has seen a new willingness and in some cases eagerness to pursue crossover investing in firms pre- and post-IPO. Venture capitalists have become less dogmatic about funding stage and equity share when positive returns seem nearly guaranteed and investment banks are engaging in discussions with entrepreneurs earlier than ever. Relatedly, corporate venture capital executives’ missions have broadened to consider more diverse forms of collaboration than the path to full acquisition.

Day two of the 2014 BIO Investor Forum featured a panel to discuss how temporary or permanent these shifts appear to be and the implications for biotech firms reaching out to the investment community.

Panelists included:

  • Moderator - Michael J. O’Donnell, Partner, Morrison + Foerster LLP

  • Panelists - Graeme Martin, PhD, President and CEO, Takeda Ventures; James Noble, CEO, Adaptimmune; Oleg Nodelman, Founder and Managing Director, EcoR1 Capital; Rajeev Shah, Portfolio Manager, RA Capital and Jonathan T. Silverstein, J.D., is a Partner and a Co-Head of Global Private Equity at OrbiMed

Michael O’Donnell kicked the conversation off with the panelists and their take on the rising trend of cross-over investing. Jonathan Silverstein informed the crowd that cross-over investing is everywhere, in his words, “today, everyone is in everyone’s backyard, there are lots of blurred lines.”

James Noble sees the advantage in entering a cross-over deal, “in my judgment, the scale of the investment offers fantastic flexibility going forward.” Further, Noble elaborates that a company must have enough in their pipeline and portfolio to turn itself in to a large company.

From the investor standpoint, Silverstein laid out the three things that make a company attractive to public investors – an experienced management team, great clinical data and affiliation with top tier investors and lawyers.

The conversation quickly transitioned to the importance of bankers to the cross-over IPO process. According to Noble, “bankers are incredibly useful.” In his opinion, organizationally for European companies, it is very difficult without a bank.

When looking to choose an investment bank, Silverstein advised that companies should start their relationship with an investor early, proactively checking their IPO record and being sure to ask questions about their trade capabilities and equities advisors.

Graeme Martin discussed Takeda’s approach. They see themselves as purely strategic and do not use financial returns as a metric of success rather use their capital returns to reinvest in the company. In order to successfully move forward with this model, Takeda sees the value in building bridges very early in the process with early stage companies.

O’Donnell then steered the discussion to deal-timing and the earlier stages at which IPO’s and cross-overs are entering the market. “Things are going out much sooner public investors are willing to take more risks,” said Silverstein. James expanded on the point when he stated that the worst IPO is where the CEO thinks the company is done at the IPO. A company must have a strong team to IPO and then they must have strong leadership to manage the team and withstand the distraction. Rajeev Shah echoed similar sentiments, “any company with a team to be in the public market should be in the public market.”

The panel quickly came to a conclusion and the stage was turned over to the audience for Q&A. And just like that, a member of the audience asked the experts, “are we really in a bubble?” After a slight hesitation, Silverstein re-emphasized the point that companies with strong data, expert management teams and good bankers will continue to drive IPOs. Oleg Nodelman chimed in that as long as we continue to see a fervor in M&A and partnering activity, things will be OK.