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12:00 AM
 | 
Dec 22, 2008
 |  BioCentury  |  Finance

Ebb & Flow

While many biotech companies are running short of cash and valuations are depressed by the confluence of crises gripping the capital markets, three experienced investor groups have managed to persuade their backers that the time to invest is now.

Last week, Novo A/Sand Abingworth Management signaled their confidence in growth equity opportunities by announcing they would be putting more money to work in 2009, while private equity group Celtic Pharma Holdings Advisorsannounced the first closing of Celtic Pharma Holdings II at $100 million.

de Novo Capital

Novo A/S, which has been active in biotech venture financing since 2000, unveiled plans to establish a financing vehicle called Growth Equity in the first few months of next year that will commit more than $100 million a year. The goal is to take advantage of depressed valuations among maturing cash-thirsty biotech companies.

"Growth Equity will invest in companies that are further down the road than those we have backed with our venture capital activities. They will be either in late stage clinical, at the start of the commercialization phase, or could be consolidators where we combine assets with stronger management teams," Ulrik Spork, managing partner at Growth Equity, told Ebb & Flow.

"We have been thinking about this for some time, but our decision to do this has been accelerated by the current market conditions," he added. "There are clearly some opportunities out there and there is likely to be less capital available to these companies. Therefore we can get into these companies and build value and long term strategies that would be an alternative to chasing an IPO, which won't provide liquidity at attractive valuations."

Spork is looking to invest $30-$100 million in two to five syndicated transactions each year. While Novo could be the single financial backer, Spork would prefer to have a consortium in place with the capacity to finance the business to an exit.

"The companies could be public ones that have good development prospects but are struggling to raise money in this environment," he said. "We will be less inclined to take huge technology risks in these companies. We are going to be more like a private equity fund than a venture fund."

Growth Equity will invest out of the balance sheet of Novo A/S, which manages about $12 billion of assets - 90% of which are tied up in the 25% stakes it has in both Novo Nordisk (CSE:NVO; NYSE:NVO) and Novozymes(CSE:NZYM B). Until now, the balance has been invested in Novo's venture portfolio, to the tune of $100 million a year since 2000, and liquid financial assets.

"We have decided to take some of those liquid financial assets and reallocate the money," Spork added.

Spork is stepping out of the venture team. He plans to spend the next few months putting together a team and looking at potential investment opportunities. The first investments could come as early as the summer.

Growth co-habitee

Abingworth increased its commitment to investing in growth equity opportunities with the close of an £84 million ($126 million) fund that will co-invest with Abingworth Bioventures V, which closed at £304 million last year (see BioCentury, Feb. 5, 2007).

"Part of the V fund is already focused on growth equity opportunities, but we decided that we wanted to have access to top-up funds. The...

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