Domain Associates Unfazed By Biotech IPO Ups and Downs

Print 10 April 2014
Timothy Hay, Wall Street Journal

Biotechnology stocks have had a rollercoaster experience on the public markets this year, with the sector taking a major hit in recent weeks after a long run-up.

Domain Associates—a health-care-focused venture firm that has helped ten biotech companies go public since the summer of 2012, and has three more in registration now—said the ups and downs are part of the normal, cyclical nature of investing.

All but one of the firm’s ten recently public companies—gastrointestinal drug maker Evoke Pharma Inc.—are currently trading above their offering price, said Nicole Vitullo, a Domain partner who has been with the firm for 15 years.

Domain is working from its eighth formal fund, a $500 million investment vehicle, and has been active in life-sciences investing since the 1980s, Ms. Vitullo said.

As a longtime player in a space that has been known to spook other investors, Domain employs a different strategy and advises its portfolio companies differently than other firms might, she said.

Ms. Vitullo talked to VentureWire about the current climate for biotech stocks, and Domain’s strategy for getting young companies to the public markets.

We’ve been seeing a lot of new biotech stocks go up and then sharply down. Is the IPO window beginning to close for biotech?

Today’s environment is not entirely unexpected. I wouldn’t read too much into it. There is weakness in the market, but the weakness is not specific to biotech. We’ve been through these cycles more than once. It’s too early to put nails in the coffin. This is all very recent. After a couple of years of outperforming, there’s sometimes a breather, and stocks don’t perform as well.

So you are saying these stocks are going to bounce back?

No, because at this stage, it’s really hard to categorize what’s going on. I can’t tell you if it’s a breather, or the end of a run. Windows open, and they close. But our firm, fund after fund, we’ve navigated through whatever markets.

What do you tell your portfolio companies when the pubic-market reception changes, especially the ones that have set a date to go public?

If the capital markets are difficult, don’t be solely dependent on them. It’s important for companies to be opportunistic, to be ready to go out and access capital. If this is the end of a cycle, and you are still pre-clinical, you are still going to need access to capital, whether it is private, public, non-dilutive, grants, whatever. We tell our companies to be opportunistic, because we don’t know how long this window is going to stay open.

You have three in registration now, Aldeyra Therapeutics Inc., Ariosa Diagnostics Inc. and Syndax Pharmaceuticals Inc. Will you advise any of them to delay their debut?

These will be game-day calls, just like always. Every IPO, you watch the market, and you make the call.

How has Domain achieved its track record with successful biotech IPOs, what does the firm do differently?

Any company in health care needs access to capital to develop products. If the public markets are not available, you do other things. We got into a partnership with RusNano, the Russian government-sponsored firm that likes health care. They have put aside $330 million to invest in Domain companies, and they invest alongside us. We’ve done nine deals with them.

Also, Domain has been a prolific investor in diagnostics companies. That’s a space that a lot of other firms moved away from. Fifteen years ago, it was too expensive. But we saw a lot of things coming together, a lot of opportunities. The cost of the technology was coming down, the cost of gene sequencing was coming down. These kinds of companies can get to revenue on much less funding, in much shorter timeframes.

Do you have any advice for the company founders out there who want to take their biotech startup public one day?

You need an experienced CEO and management team, with a story that investors can get behind. And the more risk you can take out, the more attractive it will be. Be opportunistic when it comes to accessing capital, and take as much risk away as you can. This is a market with a lot of perceived risk, and markets are really in the eye of the beholder.

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