US VC warns of early IPO dangers

Don't go public too early, use incubators to get your company off the ground and maximise collaborative opportunities, were the key messages from US venture capitalist Peter Morgan Kash at the AusBiotech 2002 conference this week.

"Do not make the same mistakes we made in America," Kash warned delegates. "In the late '80s and early '90s we took companies public way too prematurely and the same thing happened in other countries."

He advocated the use of incubator facilities at universities and contract research to enable small companies with good ideas to build strength at low cost, and stressed the need to leverage collaborations with academic groups and other companies.

"Try to find collaborators in the US, Europe, Israel or Japan, where other collaborators are working on something very similar to what you're working on, and leverage off of one another. If we all leverage off of one another we can all look back at what we've accomplished five years from now," he explained.

Kash, who is a senior managing director at Paragon Capital, explained why he believed biotechnology was in a position to begin taking over pharmaceutical companies as the major developer of new therapeutics.

"In five years, there are projected to be over 55 profitable companies," he said. "Biotech is not the dot com. Biotech is a real industry, here to stay, and will be profitable as an industry within 18 months. Drugs are significantly more profitable than any other investment cycle output."

'Unprecedented growth' predicted

Kash told delegates that the biotech industry was currently not highly valued by Wall Street, but said that he considered this as a positive and that in his opinion the industry was about to enter a phase of unprecedented growth.

"Look at the value of the biotech industry. We're only trading at slightly less than that of Pfizer by itself, yet we've over 282 Phase III products for which you can expect a 50 per cent approval," Kash said.

He predicted that billion dollar drugs would be coming out of the biotech pipeline in the next few years and as a result of acquisitions by pharmaceutical companies, biotechnology companies would end up being major shareholders of the pharma industry rather than the other way around.

"Biotechnology will be larger than the pharmaceutical industry and I personally believe that the biotechnology industry will own the pharmaceutical industry. By the year 2020 if you look at the percentage increase of drugs developed almost all of it will be through the biotech industry," Kash said.

Kash said that almost 1000 new drugs were expected to be on the market in the next five years.