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Justin Hibbard
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March 17, 2005

On the other hand...

Sarah Lacy

For those of you who read Deal Flow religiously and get Dan Primack's daily PE Wire email newsletter, I hope you've been enjoying the tête-à-tête we've been having over the health of the biotech IPO market. Dan writes today about an interview with the CFO of TargaCept, which officially withdrew its planned IPO yesterday. (Score one for Sarah's pessimistic view of the world.)

Dan has raised some good points. Biotech IPOs do have to be judged by a different standard. True, just getting out and getting money is success. And without revenues, they're always going to be a bit dicey to pull off, unless we're in the middle of a bubble. And I think there's a strong case to be made that if this year mirrors 2004 and a couple dozen IPOs can go out and do reasonably well, it's a sign that the biotech market has come of age. That it doesn't need bubbles to get deals done. That they can go out in any market if they've got some good science and early clinical results.

These are all points that sources have raised to me over the last few months. The problem I have is that anyone close to the action has skin in the game. I'm not saying anyone is being misleading, but could you honestly expect bankers, venture capitalists or the attorneys doing the deals to take the glass-half-empty view? If they did, you can bet it wouldn't be on the record.

So the only objective thing to look at is the small sample size of deals that have gone out. As Dan points out overall they are trading better than the market. But look behind that number. Only two have traded up and those two are skewing the numbers greatly. All have had to slash prices dramatically--including the two that are trading up. And several haven't made it out, citing how bad the market is. And far less IPO hopefuls have filed than bankers expected by this time back in January, indicating they are seeing something that makes them worry. I'm not saying the sky is falling, but I stand by my skepticism.

04:20 PM


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