VC biotech bet pays off big

May 18, 2011, 8:01 PM UTC

Venture capital headlines are dominated by sales of Silicon Valley tech companies. But today’s biggest sale was for a regenerative medicine company tucked inside of Connecticut. 



Shire PLC (SHPGY) today said that it would pay $750 million in cash to buy Advanced BioHealing Inc., a Westport, Conn.-based regenerative medicine company whose lead product is focused on treating diabetic foot ulcers.

Advanced BioHealing had been expected to go public this week, with a $200 million IPO that could have valued the company at upwards of $637 million. But it took the Shire deal at the last minute, which gives an even greater premium to venture capital investors like Canaan Partners (40.7% stake), Safeguard Scientifics (28.1%) and Wheatley Partners (14.7%).

Let me put this in some context: Last week, we heard how Skype investors made out like bandits on the $8.5 billion sale to Microsoft. And, no doubt, a 3.5x cash-on-cash return in less than two years is nothing to sneeze at.

But, with Advanced BioHealing, we have a cash-on-cash return that is around 4x larger than what Skype investors are getting. And that’s with a hold time just 3x longer than Skype on the earliest Advanced BioHealing — while most of the money actually went in just four years ago. Moreover, appear that a firm like Canaan Partners will book more actual cash profit on this deal than will a firm like Andreessen Horowitz on Skype.

A persistent venture capital meme is that healthcare returns just can’t match tech returns. Hopefully Advanced BioHealing will shove another stake through that canard.