Aspreva Proves Me Wrong...Sort Of.

Sarah Lacy

My hat is off to Aspreva, the first biotech IPO to both debut above $10 per share and trade up significantly since. But I'm not ready to eat that hat quite yet.

Loyal Deal Flow readers will know that I've been pretty bearish on the market for new biotech issues, and there have been plenty reason. Hopeful IPOs should send a nice, big fruit basket to Aspreva for pushing ahead with its offering at a time when others pulled citing the ever popular "market conditions" excuse. It proved there is some appetite, even if it's a very finicky one.

But, note that Aspreva has a lot going for it your average biotech doesn't.

Like last year's big hit Pharmion, Aspreva is licensing existing compounds and figuring out new uses for them. It has emerged as a popular business model in the last few years because it's a less risky, quicker path to commercialization. All you have to do is prove the new indication, rather than discovering a molecule or compound from scratch and paying for full clinical trials. It's very close to its first product in CellCept, licensed in 2003 from Roche. A year ago it was written up in the New England Journal of Medicine as a promising treatment for Lupus, a disease where there hasn't been a new drug approved in 30 years. Aspreva hasn't been hurting for cash either: It sewed up a tidy $57 million series A round a year ago.

Critics have noted that this business model may provide smaller returns long term than a company developing a fat R&D pipeline, ala Genentech. After all, you are relying on sloppy seconds that big pharma doesn't have time to develop or counting on being able to spot potential the company that owns the compound doesn't see. If the trend gets over done, as most in the venture capital world do, buying opportunities for neglected compounds could dry up. Some big flameouts could render this business model as unpopular as others in the biotech world now left for dead. (Remember all those genomics companies?) But for now, Wall Street is voting with its wallet for companies with quicker prospects for products and revenues.

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