All hail “non-dilutive” biotech financing

The bear market notwithstanding, biotechs continue to burn vast amounts of cash, meaning that they will need more sooner or later. But the market malaise has laid many low, and with investors suddenly unwilling to part with their money doing a secondary equity offering has become difficult. Little wonder that some are turning to debt or other forms of financing that can loosely be termed “non-dilutive”. Just yesterday Blueprint secured $575m, with another $675m available later, in a deal with Sixth Street and Royalty Pharma that mortgaged Ayvakit and Gavreto royalties and provided various lines of credit. After market close Geron added $50m to an existing $75m loan with Hercules Capital and Silicon Valley Bank, and this morning Cytokinetics priced a $450m convertible debt offering. Needs must, but gearing up businesses that are naturally loss-making is a questionable strategy, and though debt might seem cheap at one point, a subsequent collapse in market value can make it incredibly hard to service – as Dendreon and others found to their cost. This is not to say that biotech debt is always a bad idea, but its track record is decidedly mixed.

Selected highs and lows of biotech debt financing
Company Detail Outcome
Cubist $450m convertible in 2010, $800m convertible in 2013 Company bought by Merck & Co in 2014
Tesaro $500m term loan in 2017 Company bought by GSK in 2018
Human Genome Sciences $495m convertible in 2011 Company bought by GSK in 2012
Dendreon $620m convertible in 2011 Company became insolvent in 2014
Synergy Pharma $300m loan in 2017 Company became insolvent in 2018
Orexigen $172m of gross debt on balance sheet in 2018 Company became insolvent in 2018
And some where the jury is still out
Clovis $630m debt (incl $437m convertible) on balance sheet in Mar 2022 Company has been paying off and refinancing debt, but is currently capitalised at just $260m
Bridgebio $450m credit line in Nov 2021 Acoramidis failed in Dec 2021; company now capitalised at $1.3bn
Neurocrine $450m convertible in 2017 Company has repurchased some debt, incl $224m for cash in May 2022 
Source: company filings.

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