Monday, October 25, 1999
In its recent Back to School Commentary, BioCentury argued that the success of the biotechnology industry can be measured by the ability of companies to grow into - and then out of - the mid-tier group of companies valued at $300 million to $800 million.
Under this scenario, smaller cap companies typically arrive in the mid-cap group after completing late-stage clinical trials, providing both validation of technology and visibility to the investment community.
On reaching this threshold, the key is generating leverage to leap into the top tier of companies valued above $1 billion. Indeed, the mid-cap space is seen as no more than a way station, where companies are either promoted or demoted but do not linger for long (see BioCentury, Sept. 7).
Once out of that group, companies still have work to do to maintain earnings and sustain their value. However, the top tier biotechs have one thing in common: they somehow have successfully managed the critical decisions that eventually separate the big from the small.
To carry on with this theme, BioCentury asked several mid-and top tier companies to discuss the key decisions or inflection points that determined their ascent. This group includes Alkermes Inc., Icos Corp., ImClone Systems Inc., QLT PhotoTherapeutics Inc., Transkaryotic Therapies Inc., Triangle Pharmaceuticals Inc. and Vertex Pharmaceuticals Inc.
Based on their examples, there is no single formula for reaching or surpassing the $500 million threshold. However, certain decision points are clearly critical, and in most cases those decisions must be made in advance of being ready for them. Thus anticipating crucial decision points may make the difference in allowing companies to grow and survive.
In particular, this sample includes companies that have focused on developing products for internal commercialization or have retained downstream participation - some form of marketing rights - in product partnerships. Similarly, they have maintained a broad product portfolio to avoid dependence on a single product.
Once the basic strategic direction has been chosen, staying the course requires a hard look at one's projects with an eye towards the revenues that will be necessary to propel a company up and out of the mid-tier.
At the same time, companies that have reached the top tier have cut projects that failed to meet a pre-defined financial or clinical standard. They also have acted in the interest of long-term outcomes rather than short-term expediency, including taking the necessary time for methodical product development, or waiting to sell equity until the company's stock price is high enough to avoid excessive dilution.
And as a company grows, not only must particular product development hurdles be crossed but the role of company management can be expected to change as well. Companies that have yet to enter the mid-tier group who adapt to that change may be able to repeat the experiences of the companies presented here rather than the history of those companies for whom $500 million was a glass ceiling.
Alkermes: An eye on market cap
Unlike many companies that say they do not consciously seek to achieve a given market cap, "it's always been an explicit goal for the company to raise our market cap," said Alkermes Inc. CEO Richard Pops. "Large cap companies make a more attractive security for investors because as size increases, everything from partners to investors gets amplified."