Monday, December 20, 2010

2010 Exit/Financing DOTY Nominee: Ironwood Pharmaceuticals

It's time for the IN VIVO Blog's Third Annual Deal of the Year! competition. This year we're presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (four or five in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.

The February 2010 public market debut of Ironwood Pharmaceuticals valued the company at greater than $1 billion pre-money. That had never happened before for a development-stage biotech.

Impressive? Oh, hell yes. Is that the reason we think you should vote for Ironwood's IPO as IVB's exit/financing of the year? Not so much.

Then Ironwood deserves a DOTY award for the $203 million it netted at the offering, right? After all that's the most money any biotech has pulled in since 2000, when Lion Bioscience, Tanox, Lexicon were filling their coffers via the public markets.

No, that's not the reason either. And we certainly aren't nominating Ironwood for any post-IPO performance metric: the company hasn't fared so badly, but it's basically treading water (there, Aveo Pharmaceuticals, up 56% from its March IPO price, out-performs the 2010 class).

The real reason for the nomination of Ironwood -- a company founded in 1998 as Microbia that finds itself, after several twists and turns, on the precipice of filing its first NDA -- is rooted in how the biotech structured its IPO in the first place to ensure the company's independence and allow it to focus on long-term strategy instead of short term financial gain.

The IPO didn't just provide temporary financial independence. More importantly, it made real the company's unusual dual-class share structure, which concentrates decisions around change-of-control (and only change of control) in the hands of long-term, pre-IPO shareholders as a means of warding off hostile offers and unwanted activist shareholder involvement.

That's right -- Ironwood wants to build a pharmaceutical company that can stay in business for the long haul. After a few false starts and clinical setbacks throughout the past decade, it seems to be onto a winner with its Phase III linaclotide compound for IBS and chronic constipation. Phase III studies have thus far been impressive. It has linaclotide partnerships with Forest, Almirall and Astellas in key geographic areas and cash to see it through to the finish line and then some. It has seasoned drug developers and the substrate to build a pipeline.

And now it has takeover insurance. Ironwood's IPO locked in a system that won't attract short-term shareholders looking for a quick M&A-infused bump. The company won't garner the potential takeout premium that its peers might enjoy because it simply isn't for sale any time soon, even if linaclotide – or the next drug down the bench – is approved.

The guarantee of independence is a rare commodity in biotech. And of course there's no real guarantee Ironwood won't be sold. But its dual class structure allows long-term holders to call the shots, its significant financial cushion was inflated by its IPO haul, and the promise of linaclotide in the near term suggests Ironwood's growth won't be stunted. And it hasn't had to surrender large swathes of geographic territory or pawn its pipeline to get there either, part of the compromises of big-sibling protection that is the closest thing we've seen to true independence. (Just look to Genentech to see just how that can turn out in the long run).

Ironwood thinks it can innovate its way to long-term biotech success. The innovation it has shown in shareholder structure, cemented in place by arguably the most successful biotech IPO ever, will give it a chance to do so.

And that's THE reason the biotech deserves this year's Roger for best Exit/Financing.

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