Correspondence: Nils Behnke, Partner, Bain & Company, Inc., One Embarcadero Center, San Francisco, CA 94111, USA. Tel: +1 415 627 1315; Fax: +1 415 627 1033; E-mail: nils.behnke@bain.com Web: www.bain.com

¹is a partner with Bain & Company in San Francisco, and a member of Bain's Global Healthcare Practice. Before joining Bain, he spent four years as CEO of CellControl, a private biopharmaceutical company focused on oncology. Dr Behnke holds a PhD from the University of Cologne in Germany.

²is a partner with Bain & Company in Munich and a member of Bain's Global Healthcare Practice. Dr Hültenschmidt earned an MA in chemistry from Technical University of Aachen, from where he also received a PhD in technical chemistry.

Received 17 November 2006; Revised 17 November 2006.

Abstract

The paper aims to demonstrate that biotech start-ups increasingly are choosing trade sales to large pharma or biotech players to move their drug discoveries into the marketplace. It draws on Bain & Company analysis to show that this can provide higher return on investments than an initial public offering, or IPO, once the traditional exit for entrepreneurs and venture capitalists (VCs), but now far less common, and in a shorter time. It argues that pharma companies, VCs and biotech firms need to adapt their approaches to this shift and identifies new priorities for each of these key actors in the sector. In addition to its central thesis, the reader will take from the paper analysis of historical biotech trade sale and IPO data; analysis of pharma companies' strategies for and results from licensing and acquisition deal making; analysis of VCs' strategies for and results from biotech investments; and analysis of biotech companies' strategies for and results from crystallising the value of drug discoveries. The latter includes the recommendation of a 'parallel trade' approach that seeks maximum flexibility by preparing the company for both IPO and trade sale.