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New Biotech Trend: Private Equity Investing

Written by on Monday, March 26th, 2007

Business Week Online ran an interesting article this week on a new trend in the biotech world: private equity investing. 

According to Business Week Online, "at first blush, private equity and biotech make for an odd marriage."  Business Week explains as follows:

The biotech industry is famous for unstable cash flows and massive research-and-development budgets that produce many more flops than blockbusters. Private equity players aren’t known for their patience, either, and successful drugs often take decades to come to market. No amount of financial engineering can speed up the science. Still, some private equity players think they can earn big returns in the sector, even though it means investing in R&D.

The article goes on to say that, to date, the deals have been limited to businesses that have steady cash flow streams or have found ways to keep the money flowing; however, the article concedes that another play is "finding outfits that provide services to biotech scientists and thus don’t have huge research tabs." 

As Business Week Online  points out, the market for private equity could be tremendous in the biotech industry.   Indeed, the article states as follows:

Such biotech treasures could be plentiful for private equity. Stephen Evans-Freke, managing general partner at Celtic Pharmaceutical Management, a private equity firm specializing in the sector, estimates that half of biotech’s 300-odd publicly traded companies have a market value of less than $250 million—a size that makes it tricky to raise extra cash. On top of that, there are 1,000 or so privately held biotech enterprises, many of which have been struggling to pull off a public offering since the 2001 market crash. . . .

The article raises some interesting points.  It would be interesting to know just how much this trend has really taken off.  Could private equity really be another option for biotechs who aren’t quite ready for an IPO? 

Category: Biotech Deals

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