Traditional and  Non-Traditional Funding <ul><li>Moderator:   </li></ul><ul><li>Walter Greenblatt , Managing Director, Wal...
Demand Side:  How Cash-Starved Is Biotech? <ul><li>38% of small biotechs reported having less than 12 months’ cash 1 </li>...
$20.5
 
 
*Q3 angel investment  estimated from H1 data $13.5
Non-Dilutive Funding Mel Billingsley November 11, 2008
Non-Dilutive Funding <ul><li>Pros and cons of non-dilutive funding </li></ul><ul><li>Types of non-dilutive funding </li></...
Non-Dilutive Funding <ul><li>Pros and cons of non-dilutive funding </li></ul><ul><ul><li>Preserves current status of equit...
Non-Dilutive Funding <ul><li>Types non-dilutive funding </li></ul><ul><ul><li>Federal SBIR/STTR grants: competitive </li><...
Non-Dilutive Funding <ul><li>Qualifications and Conditions </li></ul><ul><ul><li>Federal SBIR/STTR grants: must meet SBA c...
Non-Dilutive Funding <ul><li>Qualifications and Conditions: Convertible Debt </li></ul><ul><ul><li>Terms are time-limited ...
Alternative Financing Options Anne M. VanLent November 11, 2008
Options for Discussion <ul><li>Royalty Financing </li></ul><ul><li>Collaborative Development (R&D) Financing </li></ul><ul...
Beyond Traditional Equity and Debt… Royalty Financing Reverse Mergers Committed Equity Financing Facility Venture Debt CRO...
What is Royalty Financing? <ul><ul><li>Royalty financing is a transaction in which a company receives an upfront payment, ...
Why is Royalty Financing Relevant? <ul><ul><li>In turbulent equity and debt capital markets, royalty-based financing is a ...
Characteristics of Royalty Financing <ul><ul><li>Commercial-stage healthcare products - existing or near term product sale...
Clinical Development Collaboration Structure 2-4   years 2-4 strategically important drugs BiotechCo Investment Inception ...
Clinical Development Collaborations Generate Value for Shareholders and for Symphony 12 months 24 months Time Value Illust...
Value of Collaborative Development Financing <ul><li>Strategic Value </li></ul><ul><li>Accelerate pipeline </li></ul><ul><...
Priority Review Vouchers (PRVs) <ul><li>Available to sponsor of newly-approved drug or biological for neglected tropical d...
Venture Debt Market Overview
Structure of Typical Venture Debt Deal <ul><li>Can either be equipment financing, pure working capital or a combination </...
Benefits of Venture Debt <ul><li>Near Term non dilutive financing </li></ul><ul><li>Reduced cost of capital vs. equity </l...
Risks of Using Venture Debt <ul><li>Payback timing has to be carefully managed </li></ul><ul><ul><li>Constant reminders to...
Catalysts for Reopening of Biotech IPO Window
All Respondents (N=331) (a) Source: Results from Lazard 2008 Healthcare Survey  (a) 2 respondents skipped this question 47...
What do the Banks Say? - Market Condition Requirements- <ul><li>Input from two heads of equity capital markets desks: </li...
What do the Banks Say? - Company Specific Requirements- <ul><li>Input from two heads of equity capital markets desks: </li...
M&A Considerations Christopher P. Schnittker, CPA November 11, 2008
Biotech M&A Trends Source: Collins Stewart LLC
Pharma/Biotech M&A Deals <ul><li>Novo Nordisk acq’d Neose Technologies ($21m) </li></ul><ul><li>Eli Lilly acq’ing ImClone ...
Biotech/Biotech M&A Deals <ul><li>Ligand acq’d Pharmacopeia ($73m) </li></ul><ul><li>Arca Biopharma acq’d Nuvelo (ND) </li...
Future Landscape of M&A <ul><li>Many large Pharmas have recently publicly stated they are increasing their biotech M&A foc...
Reverse Mergers <ul><li>Growing alternative to classic IPO route </li></ul><ul><li>Two main types of transactions: </li></...
Reverse Mergers <ul><li>Benefits: </li></ul><ul><ul><li>Access to capital markets and public listing </li></ul></ul><ul><u...
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Biotech 2008 Evolution Of Capital Session Slides For Walter Mel Anne Gary Chris

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Biotech 2008 Evolution Of Capital Session Slides For Walter Mel Anne Gary Chris

  1. 1. Traditional and Non-Traditional Funding <ul><li>Moderator: </li></ul><ul><li>Walter Greenblatt , Managing Director, Walter Greenblatt & Associates </li></ul><ul><li>Panelists: </li></ul><ul><li>Zev Scherl , General Partner, NewSpring Capital </li></ul><ul><li>Mel Billingsley, Ph.D ., President & CEO, Life Sciences Greenhouse of Central PA </li></ul><ul><li>Anne VanLent , President, AMV Advisors </li></ul><ul><li>Gary Sender , CFO and Vice President of Finance & Administration, Tengion Inc. </li></ul><ul><li>Chris Schnittker , CPA, Vice President & CFO, VioQuest Pharmaceuticals, Inc. </li></ul>The Evolution of Capital:  November 11, 2008
  2. 2. Demand Side: How Cash-Starved Is Biotech? <ul><li>38% of small biotechs reported having less than 12 months’ cash 1 </li></ul><ul><li>Nearly 100 of the ~330 public biotech companies have less than six months cash on hand 2 </li></ul><ul><li>Of 370 small biotechs surveyed, as reported by the Biotechnology Industry Organization </li></ul><ul><li>Wall Street Journal, 10-29-08. </li></ul>
  3. 3. $20.5
  4. 6. *Q3 angel investment estimated from H1 data $13.5
  5. 7. Non-Dilutive Funding Mel Billingsley November 11, 2008
  6. 8. Non-Dilutive Funding <ul><li>Pros and cons of non-dilutive funding </li></ul><ul><li>Types of non-dilutive funding </li></ul><ul><li>Stage-specific funds- early vs. revenue stage </li></ul><ul><li>Qualifications and conditions </li></ul><ul><li>Additional issues </li></ul>
  7. 9. Non-Dilutive Funding <ul><li>Pros and cons of non-dilutive funding </li></ul><ul><ul><li>Preserves current status of equity/ cap table </li></ul></ul><ul><ul><li>If via peer-review grant, offers 3 rd party vetting </li></ul></ul><ul><ul><li>Limited scope of funding- $100K- $2M </li></ul></ul><ul><ul><li>Some forms may convert to equity stake at later stage </li></ul></ul><ul><ul><li>Timing may be difficult </li></ul></ul>
  8. 10. Non-Dilutive Funding <ul><li>Types non-dilutive funding </li></ul><ul><ul><li>Federal SBIR/STTR grants: competitive </li></ul></ul><ul><ul><li>Contracts (federal and private): service-directed </li></ul></ul><ul><ul><li>Venture philanthropy/ foundation funding </li></ul></ul><ul><ul><li>Convertible Debt (may be paid back with interest or converted to equity at a subsequent stage) </li></ul></ul>
  9. 11. Non-Dilutive Funding <ul><li>Qualifications and Conditions </li></ul><ul><ul><li>Federal SBIR/STTR grants: must meet SBA criteria (>51% ownership, <500 employees) </li></ul></ul><ul><ul><li>Contracts: federal contracts have considerable paperwork; deliverables required </li></ul></ul><ul><ul><li>Venture philanthropy/ foundations- often target specific diseases; may be derivative from main corporate mission </li></ul></ul>
  10. 12. Non-Dilutive Funding <ul><li>Qualifications and Conditions: Convertible Debt </li></ul><ul><ul><li>Terms are time-limited (3-5 yrs) </li></ul></ul><ul><ul><li>Conditions for conversion into equity spelled out: usually based on 3 rd party financing milestone </li></ul></ul><ul><ul><li>May be repaid plus interest (and/or warrants) </li></ul></ul><ul><ul><li>Avoids issue of immediate valuation </li></ul></ul>
  11. 13. Alternative Financing Options Anne M. VanLent November 11, 2008
  12. 14. Options for Discussion <ul><li>Royalty Financing </li></ul><ul><li>Collaborative Development (R&D) Financing </li></ul><ul><ul><li>Symphony as a model </li></ul></ul><ul><li>Priority Review Vouchers </li></ul><ul><li>Others? </li></ul>
  13. 15. Beyond Traditional Equity and Debt… Royalty Financing Reverse Mergers Committed Equity Financing Facility Venture Debt CRO-Linked Financing Collaborative Development Financing Structured Product Financing Charitable Foundations Partnerships with Big Pharma Funded Spin-Outs
  14. 16. What is Royalty Financing? <ul><ul><li>Royalty financing is a transaction in which a company receives an upfront payment, and in some cases future payments, in exchange for a percentage of the company’s future product revenues </li></ul></ul><ul><ul><li>Royalty financings can take on several forms: </li></ul></ul><ul><ul><ul><li>A Royalty Interest or passive royalty financing is an asset purchase of a pre-existing royalty resulting from an existing license agreement or cash flow stream </li></ul></ul></ul><ul><ul><ul><li>A Synthetic Royalty SM financing is the creation of a royalty around a single product or a basket of product revenues </li></ul></ul></ul><ul><ul><ul><li>A Hybrid financing may combine royalty-based financing with structured debt and equity investments </li></ul></ul></ul>
  15. 17. Why is Royalty Financing Relevant? <ul><ul><li>In turbulent equity and debt capital markets, royalty-based financing is a constant source of capital </li></ul></ul><ul><ul><li>Royalty financing is a way to raise non-dilutive capital to: </li></ul></ul><ul><ul><ul><li>Finance new development opportunities </li></ul></ul></ul><ul><ul><ul><li>Acquire new products or technologies </li></ul></ul></ul><ul><ul><ul><li>Build-out commercial infrastructure </li></ul></ul></ul><ul><ul><ul><li>Launch a product; Fund working capital needs </li></ul></ul></ul><ul><ul><ul><li>Unlock unrealized value in product royalties </li></ul></ul></ul><ul><ul><li>Benefits of royalty financing include: </li></ul></ul><ul><ul><ul><li>Non-dilutive to equity </li></ul></ul></ul><ul><ul><ul><li>Typically lower cost than equity </li></ul></ul></ul><ul><ul><ul><li>Lack of rigid covenants - greater alignment with equity holders </li></ul></ul></ul><ul><ul><ul><li>Flexibility of structuring </li></ul></ul></ul><ul><ul><ul><li>Simple transaction with single counterparty </li></ul></ul></ul>
  16. 18. Characteristics of Royalty Financing <ul><ul><li>Commercial-stage healthcare products - existing or near term product sales </li></ul></ul><ul><ul><ul><ul><li>Performance based - paid off percentage of product sales </li></ul></ul></ul></ul><ul><ul><li>Intellectual property protection </li></ul></ul><ul><ul><ul><ul><li>Valid patent protection with significant patent life remaining (i.e. 5+ yrs) </li></ul></ul></ul></ul><ul><ul><li>Product type - a diverse mix; any therapeutic category </li></ul></ul><ul><ul><ul><ul><li>Pharmaceuticals, drug delivery, medical devices, diagnostics </li></ul></ul></ul></ul><ul><ul><li>All stages of growth: recently launched, mature, declining </li></ul></ul><ul><ul><li>Other dynamics of royalty deals can include </li></ul></ul><ul><ul><ul><ul><li>Advanced Phase III products </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Basket of products to diversify portfolio </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Structured returns with company maintaining upside </li></ul></ul></ul></ul>
  17. 19. Clinical Development Collaboration Structure 2-4 years 2-4 strategically important drugs BiotechCo Investment Inception $40-100 million Symphony + Co-Investors Pre-negotiated Exit Via Purchase Option 2-3x cash-on-cash returns More valuable drugs BiotechCo Symphony + Co-Investors Symphony’s Active Involvement Development Committee Clinical expertise Regulatory expertise Board of Directors Strategic governance Financial control Clinical Development Collaboration
  18. 20. Clinical Development Collaborations Generate Value for Shareholders and for Symphony 12 months 24 months Time Value Illustrative Note: Red line does not include value of BiotechCo equity received by Symphony 36 months Out-license any one product to Large Pharma on superior terms Incremental value to BiotechCo Attractive return to Symphony: 2.3x Multiple ~35% IRR + Additional Upside in BiotechCo Equity Product Value $50MM from Symphony + 2-4 products from BiotechCo Symphony Collaboration formed Phase 1 Phase 2 triggers Purchase Option exercise $115MM Purchase Option Exercise Price
  19. 21. Value of Collaborative Development Financing <ul><li>Strategic Value </li></ul><ul><li>Accelerate pipeline </li></ul><ul><li>Preserve control </li></ul><ul><li>Share risk </li></ul><ul><li>Clinical Value </li></ul><ul><li>Development Committee value add </li></ul><ul><li>Expand internal capabilities </li></ul><ul><li>Financial Value </li></ul><ul><li>Guarantee funding </li></ul><ul><li>Preserve future economic upside </li></ul><ul><li>Minimize dilution and cost </li></ul>
  20. 22. Priority Review Vouchers (PRVs) <ul><li>Available to sponsor of newly-approved drug or biological for neglected tropical disease </li></ul><ul><li>Approved itself under Priority Review </li></ul><ul><li>Voucher is transferrable or saleable </li></ul><ul><ul><li>Biotech can sell to big pharma </li></ul></ul><ul><li>Applicable to any NDA/PLA submission </li></ul><ul><li>NPV value of acceleration estimated at between $50 million and $500 million </li></ul>
  21. 23. Venture Debt Market Overview
  22. 24. Structure of Typical Venture Debt Deal <ul><li>Can either be equipment financing, pure working capital or a combination </li></ul><ul><li>Size range: $1MM - $20MM </li></ul><ul><li>Maturity: 2 to 4 Years </li></ul><ul><ul><li>Oftentimes starts with an interest only period </li></ul></ul><ul><li>Interest Rate: Spread to LIBOR or other index </li></ul><ul><ul><li>~11% to 13% </li></ul></ul><ul><li>Warrants struck at last financing round </li></ul><ul><ul><li>2 to 9% of total debt facility </li></ul></ul><ul><ul><li>Equity participation oftentimes attached </li></ul></ul>
  23. 25. Benefits of Venture Debt <ul><li>Near Term non dilutive financing </li></ul><ul><li>Reduced cost of capital vs. equity </li></ul><ul><li>For capital intensive companies, allows equity to mostly finance R&D </li></ul><ul><li>Runway extension </li></ul><ul><li>Equipment draws can oftentimes exactly match timing of expenditure </li></ul><ul><li>Provides an additional equity investor </li></ul>
  24. 26. Risks of Using Venture Debt <ul><li>Payback timing has to be carefully managed </li></ul><ul><ul><li>Constant reminders to current investors that burn will increase </li></ul></ul><ul><li>Triggering of Material Adverse Change clause can be burdensome </li></ul><ul><li>In a liquidation, debt holders get paid back first </li></ul><ul><li>Will debt provider have the $ if draws are staggered? </li></ul><ul><ul><li>Get references and inquire about substance of funders’ balance sheet and their investors </li></ul></ul>
  25. 27. Catalysts for Reopening of Biotech IPO Window
  26. 28. All Respondents (N=331) (a) Source: Results from Lazard 2008 Healthcare Survey (a) 2 respondents skipped this question 47% 15% 12% 9% 5% 5% 7%
  27. 29. What do the Banks Say? - Market Condition Requirements- <ul><li>Input from two heads of equity capital markets desks: </li></ul><ul><ul><li>Improved share performance of small and mid cap biotech companies </li></ul></ul><ul><ul><li>Lower volatility in the equity markets. Investors need to feel that they can invest for 2-5 year return and not be watching their screens constantly </li></ul></ul><ul><ul><li>Inflows into equity mutual funds </li></ul></ul><ul><ul><li>Stability in hedge fund Industry </li></ul></ul><ul><ul><li>Wave of M&A slows leaving lower supply of biotechs looking to be financed </li></ul></ul><ul><ul><li>Conclusion : need market stability and better returns on publicly traded biotechs. Window could open 2H09 or 1H10 </li></ul></ul>
  28. 30. What do the Banks Say? - Company Specific Requirements- <ul><li>Input from two heads of equity capital markets desks: </li></ul><ul><ul><li>Clear pathway to regulatory approval. </li></ul></ul><ul><ul><li>18-24 months of financing post IPO. </li></ul></ul><ul><ul><li>$15-25 million on the balance sheet at the time of the offering. </li></ul></ul><ul><ul><li>Well-known to investors. Strong management with 1) a history of taking products through the FDA and 2) that worked at leading thought centers (where PhD investors also trained. </li></ul></ul><ul><ul><li>Focus on tangible areas. Alzheimer's and neurology may be tough. </li></ul></ul><ul><ul><li>A little bit of luck....that markets perform well during the roadshow. </li></ul></ul>
  29. 31. M&A Considerations Christopher P. Schnittker, CPA November 11, 2008
  30. 32. Biotech M&A Trends Source: Collins Stewart LLC
  31. 33. Pharma/Biotech M&A Deals <ul><li>Novo Nordisk acq’d Neose Technologies ($21m) </li></ul><ul><li>Eli Lilly acq’ing ImClone Systems ($7.1b) </li></ul><ul><li>Sanofi-Aventis acq’d Acambis ($548m) </li></ul><ul><li>Roche acq’ing Genentech ($44b) </li></ul><ul><li>Novartis acq’d Protez ($400m) </li></ul><ul><li>Fresenius acq’d APP Pharma ($3.7b) </li></ul><ul><li>Stiefel acq’d Barrier Therapeutics ($148m) </li></ul><ul><li>Galderma acq’d CollaGenex ($420m) </li></ul>
  32. 34. Biotech/Biotech M&A Deals <ul><li>Ligand acq’d Pharmacopeia ($73m) </li></ul><ul><li>Arca Biopharma acq’d Nuvelo (ND) </li></ul><ul><li>ViroPharma acq’d Lev Pharmaceuticals ($443m) </li></ul><ul><li>Cubist Pharmaceuticals acq’d Illumigen ($342m) </li></ul>
  33. 35. Future Landscape of M&A <ul><li>Many large Pharmas have recently publicly stated they are increasing their biotech M&A focus </li></ul><ul><li>Deal burden in Pharma’s BD departments increasing, with fewer resources and their own internal turmoil </li></ul><ul><li>Valuations are challenging in this environment </li></ul><ul><li>Fair value accounting rules in 2009 may have impact </li></ul><ul><li>Not a speedy process – be prepared for a 6 month journey, at best. Not a ‘last resort’ strategy </li></ul><ul><li>Don’t forget to consider spin-outs and carve-outs </li></ul>
  34. 36. Reverse Mergers <ul><li>Growing alternative to classic IPO route </li></ul><ul><li>Two main types of transactions: </li></ul><ul><ul><li>Companies whose lead product has failed but have excess cash to redeploy </li></ul></ul><ul><ul><li>Publicly listed shell companies with no assets </li></ul></ul><ul><li>Selected 2008 deals: </li></ul><ul><ul><li>ONCOGENIX  Sonus Pharmaceuticals </li></ul></ul><ul><ul><li>CELLDEX  Avant Immunotherapeutics </li></ul></ul><ul><ul><li>DARA  Point Therapeutics </li></ul></ul><ul><ul><li>TRANSCEPT  Novacea </li></ul></ul>
  35. 37. Reverse Mergers <ul><li>Benefits: </li></ul><ul><ul><li>Access to capital markets and public listing </li></ul></ul><ul><ul><li>Often less dilution vs. IPO or other capital raise </li></ul></ul><ul><ul><li>Change in investor base and Board membership </li></ul></ul><ul><li>Hidden costs: </li></ul><ul><ul><li>External perception of “short cut” to market </li></ul></ul><ul><ul><li>Reduced debut marketing and later trading volume issues </li></ul></ul><ul><ul><li>Analyst coverage and other Wall Street sponsorship </li></ul></ul><ul><ul><li>May need to consider a concurrent cash raise </li></ul></ul><ul><ul><li>Shaking the “baggage” of the acquired company can be difficult </li></ul></ul>

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