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A veteran banker and former pharma R&D chief are launching a fund that will buy up some of the nearly 300 listed biotechs that have had disappointing clinical trials, returning cash to shareholders and acquiring any valuable intellectual property.
Alis Biosciences then plans to list, hoping to attract big investors such as Fidelity and Wellington by offering them an easy way to spread their bets across the industry. It estimates that listed biotechs have a total of about $30bn in cash on their balance sheets.
Nick Johnston, a former biotech banker and entrepreneur, said the fallout from a prolonged market rout in the sector since the pandemic has been a “tragedy” for shareholders.
He calculates that struggling listed biotechs have market capitalisations ranging from $5mn to $100mn but with cash reserves from $10mn to $400mn each.
“The fundamental problem is that there is just too much cash in the wrong place at the moment,” he said.
Annalisa Jenkins, former head of R&D at German drugmaker Merck, will chair the board. After it lists, Alis Biosciences plans to try to develop some of the early stage drugs candidates, including by bringing together separate ideas from its various acquisitions.
The S&P XBI index, which tracks the performance of biotech stocks, is still 50 per cent down from its high in February 2021.
During the pandemic, investors became enthusiastic about the sector, allowing a large number of start-ups to go public, often at a much earlier stage in the risky process of drug discovery and development than normal.
Johnston said that when early clinical trials gave poor results, the shares often tumbled so far that investors were stuck with them because they had no buyers.
Management teams have frequently been happy to hang on and try different approaches because they still have cash raised in the boom times, he added. Some of the new ideas were like “lemmings off a cliff”, he said, because they were based on science that had not worked in trials.
Alis Biosciences will value the companies at 90 per cent of the market capitalisation, borrowing money to buy them and then returning most of the balance sheet cash to investors.
Johnston said Alis would be able to return money far faster than the if there were a bankruptcy process.
“We only ask two questions: do you own the intellectual property and have you committed any fraud? Right, that’s all we need to know,” he said.
Jenkins said investors have expressed “strong support” for Alis Biosciences “reflecting demand for a new solution to this long-standing problem”.
“In this challenging financial market environment, there is a need for greater creativity to find answers,” she said.
