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Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: Twitter: Dereklowe

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August 20, 2013

Too Many Biotech IPOs?

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Posted by Derek

It's worth noting, on the business end of things, that we seem to be in a boom period for biotech/small pharma IPOs. I don't think anyone saw that coming, but these things take on momentum of their own. Hardly anyone went public for a few years once the financial crisis hit in 2007/2008. Then last year there were eleven new public companies, the most in quite a while. This year, though, there have been 29 (according to this piece in FierceBiotech), with eight of them since just the end of June.

That's pretty lively. And while some of this can be explained as a holdover from companies that would have gone public earlier, under less trying conditions, you'd have to think that we're getting near the bottom of the sack by now. Whatever gets pulled up at this point has a greater likelihood of having all kinds of stuff stuck to it, and it might not be in good enough condition for your portfolio to consume it. Soon we'll probably be in the part of the cycle where good companies, who would have happily launched themselves into the market a few months before, get whipsawed by a closing IPO window. If you think of a large flock of birds wheeling around in the sky, unable to quite decide which tree to land on, or whether to land at all, you'll have a pretty good mental picture of the market.

Comments (11) + TrackBacks (0) | Category: Business and Markets


1. Anonymous on August 20, 2013 7:14 AM writes...

The randomness of it all is amazing, and based on that elusive concept called "confidence". Everyone is making bets based on what they think the market will do, which comprises lots more people making bets based on what the market will do, when nobody really knows anything, so everybody is chasing noise. It's a big self-referential system, where investors have forgotten about what really counts: actual value delivered to customers.

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2. Overthetop on August 20, 2013 8:29 AM writes...

I wonder if this is simply the product of laid-off scientists being industrious and creating their own paths? I have several former colleagues that formed their own small biotechs after they were laid off. Somehow they managed to raise interest in their ventures and get funding. Just a thought.

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3. annonie on August 20, 2013 9:15 AM writes...

While some associated with a given biotech are legitimately interested & committed to progressing a concept in trying to make a new type of therapeutic or treatment, most of the small organizations will have accepted funding from angel investors and/or VC leaches. The universal primary motivation & driver of the financial backers is TO MAKE MONEY ON THEIR INVESTMENT.

While many may welcome a medical miracle, most early investor's driver focusses on how to get a substantial return on investment short-term. The classical way to do this is through a much hyped IPO that has a post-issue market demand. During the recession, there was less money being offered by angel and VC groups, as well as less public interest in buying into highly speculative new issues. This has created a backlog within the surviving private biotechs wanting to go public, corresponding to an increasing number of investors with excess cash to possibly be used for risky new, sexy looking assets. Christoph Westphal must be the prototypic master at making money from Powerpoint bluster.

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4. mad on August 20, 2013 10:29 AM writes...

@ #2 yes that is exactly it

Major loss of pharma R&D jobs so people are going biotech and hoping to sell to pharma

In a few years pharma will say "why dont we do the reseach ourselves so we can avoid all this snake oil"

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5. biotechtoreador on August 20, 2013 10:51 AM writes...

Boom, bust, lather, rinse, repeat....

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6. MDACC Grad on August 20, 2013 10:56 AM writes...

The thing everyone should be watching is if these funds re-invest in biotech with their returns or chase something else (social media, etc.)

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7. Anonymous BMS Researcher on August 21, 2013 7:06 AM writes...

There actually is an optimization algorithm known as "particle swarm" loosely based on the flocking behavior of birds, in which a number of "agents" follow both the gradient in the objective function and each other to seek a maximum or minimum within the allowed region of parameter space.

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8. Anonymous on August 21, 2013 7:14 AM writes...

@7: I've seen similar algorithms applied to model the migration of lemmings over a cliff.

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9. Suleman on August 22, 2013 5:15 AM writes...

The herd instinct is strong amongst financial people, and ends up being the basis of trends.

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10. srp on August 22, 2013 9:57 PM writes...

There's an old and not too widely known paper by Haltiwanger and Waldman on whether rational or irrational people have the greatest impact on an economic equilibrium. Their conclusion is that when the system is dominated by "congestion effects" where you want to do the opposite of everyone else (e.g. take the road with less traffic) then rational people dominate the outcome--a few rationals sprinkled among the herd will determine what happens. But when the system is dominated by "synergistic effects" where you want to do the same thing as other people (e.g. buy the same stock everybody else thinks is good), then the beliefs of irrational or uninformed people can determine the outcome--everyone follows the people who seize on one choice or another for no good reason.

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11. Anonymous on August 23, 2013 4:04 AM writes...

@10: Very interesting, and hardly surprising. Essentially, stupid people follow, while bright people lead. Guess which category dominates the human race...

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