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IPO climate remains a challenge for N.J. biotechs

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While the federal JOBS Act has made it easier for biotech companies to go public, the head of the state's biotech group said the outcome of Morristown-based Durata Therapeutics' initial public offering last week is giving other New Jersey firms pause.

"An IPO is a major vehicle for cash, if it can be done successfully," said Debbie Hart, president of BioNJ. "I hope many others are considering an IPO and do have a successful one, but it's one thing to make a decision to go public and another to be successful and get the investment."

In March, Durata proposed to sell 6.3 million shares at $11 to $13 a share in a bid to raise $82 million to bring its drug candidate Dalbavancin to market. Last week, however, the company closed its IPO of 7.5 million shares at the discounted price of $9 a share, for a total of $68 million.

Hart said venture capitalists have recently turned their attention away from biotech firms to other technology sectors, like health care information technology, where "the turnaround is considerably less" for a return on investment.

According to the latest MoneyTree report by PricewaterhouseCoopers LLP and the National Venture Capital Association, the amount of investments made by venture capitalists in biotech firms fell nearly 52 percent in the second quarter of the year compared to the same period in 2011, with $696.8 million invested in 90 companies, compared to $1.4 billion in 129 companies in the second quarter of the previous year.

"In biotech, the time it takes to bring a drug to market and for a VC to have an exit and recoup their investment is a long time. It takes 10 to 15 years and $1 billion on average today to bring a drug to market, and the odds are pretty good that it's going to fail," Hart said. "On top of that, VCs are constrained because their investors are constrained. It's still a domino effect of the recession. On any given day, an IPO could be more or less successful."

As an alternative to the IPO approach for funding, Hart said startup biotech firms have collaborated with larger pharmaceutical companies that are forming venture capital funds of their own for the purpose of bringing drugs to the market and ensuring reimbursement from insurance companies down the road.

"A company can become profitable from reimbursements, but VCs are more likely to want out before that," Hart said. "In the current climate, and going forward with the Affordable Care Act … reimbursement is the ultimate bottom line. Drug development will be further scrutinized moving forward, so it's more important for companies to think of reimbursement way down the road throughout all of their activities to make sure they are viable."

Representatives for Durata declined to comment for this story.

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