BioCentury

8:00 AM GMT, Jan 3, 2011
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Finance

More to life than debt

The name of the game last year for financing was debt, which predominantly went to the largest companies.

As long as interest rates remain low, insiders don't expect biotech appetite for debt to diminish. But some are hopeful that other forms of financing for a broader range of companies could be available in 2011.

"Companies were able to raise cash at incredibly low interest rates. Most of the big pharmas and biotechs have been taking advantage of that," observed Michael Brinkman of Jefferies. "If you can raise money at less than 5%, you'd be crazy not to. Because if you can't beat a 5% cost of capital, you shouldn't be in business."

"You have to stratify the financing data. The big cap companies are doing debt deals, with mid-caps and some smaller caps doing equity deals in the wake of positive events," said Peter Reikes of Stifel Nicolaus Weisel.

"The market is getting better," Reikes added, but there is a caveat. "There is more receptivity of investors to new financings, but there are not new investors." He expects this situation to continue for the foreseeable future.

Under these circumstances, Reikes sees company boards as very sophisticated at this point, and willing to evaluate a wide range of options.

"Fully marketed follow-on, wall-cross follow-on, plain vanilla registered direct, PIPE, convert: all of these, excluding converts, are available to everyone these days," he noted.

Reikes added that recap financings are on the table and that he's seeing direct approaches to companies by the buyside.

Amongst the smallest public biotechs - those with market caps of $500 million or less - 204 out of a universe of about 420 managed to finance last year. Of those companies, 57% did a PIPE (private investment in public equity), with an average size of $10.2 million.

Bankers were encouraged by the fact that financing activity was vigorous going into year end. In fact, companies raised $10.5 billion in 4Q10, roughly one-third of the total for the year.

"Getting

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This article and the information contained in BioCentury's publications and services are solely for your own personal, non-transferable licensed use and cannot be shared with any other individuals. For information about adding subscribers to your account or obtaining article reprints, please contact support@biocentury.com.