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Original Business Thinking for the Life Sciences |
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Allan M. Green, MD, PhD, JD, LLC Attorney at Law |
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Early Clinical Results Continue to be Key Enterprise Value Drivers |
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Significant value is built into R&D stage enterprises in steps well before product commercialization. For investors, the interim operating goals that must be sought are those that add significant enterprise value, if achieved. |
Summary |
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Phase II Proof of Principal Human Studies May Yield Significant Payoff to Risk Investors
On August 1 of 2002 Alta partners announced that it was the lead investor in a $24 million placement in the development stage biotechnology company known as Esperion. It invested $8MM in the 3.2 million share offering, receiving about a million shares of stock. At the time the company was engaged in a study of its lead anti-atherosclerosis agent ETC-216 in a small phase 2 study in patients with established severe atherosclerosis. Less than five months later, after the Company announced positive results in its study at the AHA meetings, Pfizer announced its intention to acquire Esperion for about $35 per share. Alta and its co-investors saw a return of about 437.5% in less than five months. By accepting Pfizer’s offer, Esperion management acknowledged that the acquisition was the best way of maximizing the commercialization of the research they had spend five years to develop.
This transaction demonstrates several facts about contemporary biotechnology investing: First, significant value is built into such R&D enterprises in steps well before product commercialization. A corollary to this fact is that capital sufficiency to reach a significant proof of principal event is still necessary for success. One of the important contributors to biotechnology business success remains the ability to attract sufficient capital to meet interim operating goals. For investors, the interim operating goals that must be sought are those that add significant enterprise value, if achieved.
Second, investing in selected “early stage” ventures can still yield outsized returns, despite significant enterprise risk. Third, despite a limited market for initial public offerings of R&D stage biotechnology ventures, early stage investors have attractive alternatives for exiting their investments. |
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