Funding Biotech

Catalog description

The biotechnology (biotech) industry is one of the most capital-intensive segments of the health care industry. The actual cost to bring a drug from the research labs to patients is estimated to be in the hundreds of millions of dollars, and yet only 10% of all drugs that enter human testing are ever approved, often failing due safety issues or lackluster efficacy. Therefore, when you factor in the cost of these drug failures, the cost to get a drug approved can reach into the billions. And that’s not even considering the cost to market the drug once approved. Despite these inherent clinical and commercial risks coupled with the high costs of developing and marketing a drug, there was over $500 billion of equity capital invested into biotech companies over the past 10 years signaling a robust market where returns are disproportionate to risk. This course will explore funding these risky biotech ventures from two perspectives: the biotech CEO (primary focus of the course) and the biotech investor (secondary focus of the course). Students will learn about the various ways biotech companies are capitalized (e.g., equity, convertible/structured debt, licensing partnerships, clinical trial financing, royalty monetization, etc.) and the tradeoffs a biotech CEO considers when deciding which options to pursue at various stages of the company’s evolution. We will also explore first-hand how the biotech investor thinks about the firm’s capital structure when deciding to make an equity investment as well as understand the quantitative (e.g., market & competitive assessments, total financing needs of the firm, NPV) and qualitative (e.g., physician’s proclivity to prescribe, strength of management, etc.) diligence the biotech investor performs prior to making an investment. For the final project, students will analyze the capital requirements for a biotech company and make…