More Biotech Mergers Coming Soon?
Biotechnology has long been the realm for only public companies. That may be changing and may change rather soon. Private equity firm Warburg Pincus has already made some biotech plays that seemed to be a harbinger of the trends here, and even more so when you consider foreign drug companies buying US-based biotechs on the cheap with that US Peso of a currency we have.
A new fund called GANIC Pharmaceuticals has been launched this week, and guess who the main backer is. Warburg Pincus has made an initial investment in GANIC from its Warburg Pincus Private Equity X, L.P., a $15 billion fund which closed in April. That doesn’t imply a $15 Billion investment at all, but it also doesn’t imply a few million dollars either.
GANIC is being managed by former senior executives of MedPointe Pharmaceuticals and the company will will focus on building a substantial enterprise by acquiring revenue generating companies, portfolios, and/or products and by investing in innovation and acquiring pipeline development assets.
Most private equity funds invest no less than 5% of any given funds assets in each target and generally those investments are capped at 10%. Some investments can be much higher, but that is generally a safe rule. At 5% we would say that GANIC was launched with at least a $750 million investment, and at 10% we would imply that Warburg Pincus invested $1.5 Billion in GANIC.
Keep in mind that these 5% or 10% allocation hurdles are mere benchmarks because it is very frequent that “friends, family, and former associates” frequently get far smaller allocations of capital as the funds essentially compete with venture capital stage companies in that aspect.
One thing seems rather certain here. If this doesn’t give you a signal that the deal flow in small cap and mid-cap biotech stocks isn’t going to continue or pick up, then fortune tellers would not exist.
Jon Ogg
June 19, 2008