An investment fund sets out to free biotech’s ‘trapped capital’

A British investment fund has launched with plans to extract tens of billions of dollars it believes to be “trapped” on the balance sheets of struggling, publicly traded biotechnology companies.  

Called Alis Biosciences, the fund aims to return to shareholders the cash invested in these biotechs, while still supporting the companies’ management and boards, according to a Friday statement announcing its debut.

Alis said it is targeting “significant market inefficiencies” that have left over $30 billion in invested capital stuck in nearly 300 public biotechs that have suffered setbacks and have depressed stock prices as a result. These companies have market values ranging from $5 million to $100 million and cash reserves of anywhere from $10 million to $400 million.

Historically, these types of companies tend to pivot to a different pipeline prospect or merge with a privately held counterpart. However, this strategy often further dilutes equity stakes and forces existing backers to bet on a different strategy, Alis said. 

Of late, investors and analysts have begun to more closely scrutinizing these biotech “zombies,” arguing their cash holdings should be put to better use. One firm, Tang Capital Partners, has acquired some struggling biotechs and bought up shares in others, aiming in large part to liquidate them and return cash to shareholders. Other activist firms such as BML Capital Management and Soleus Capital Management have recently cranked up pressure on company boards, too.  

Alis intends to provide another answer. It’s offering public companies a “range of innovative and adaptive structures” to both return money to shareholders and give any residual intellectual property a chance to build value.

In each case, Alis would delist a company, place its assets in a special purpose vehicle, and disburse the vast majority of uncommitted cash to existing shareholders. However, Alis could also either sell back to certain shareholders IP they intend to develop, while retaining a small stake, or instead liquidate the assets more quickly than through a bankruptcy filing. 

Alis plans to go public in the “near term” as well. Once it does, it may be able to offer a different option in which it pays investors while putting enough funds into an acquiring vehicle to develop a drug. In that scenario, investors could get a stake in Alis and a so-called contingent value right enabling them to benefit in the drug’s progress. 

“This is too big a problem to ignore and Alis is committed to finding a fresh solution,” said Nicholas Johnston, a board member and founder of Alis, in the statement. 

Alis is chaired by Annalisa Jenkins, who has sat on the boards of many biotech companies and was once the head of research at Merck Serono. In the statement, Jenkins said public and private investors have “expressed strong support” for the firm’s model. 

This issue “needs to be solved if capital is to be effectively recycled within the capital market ecosystem to finance exciting new science that has the potential to succeed and deliver investor returns,” she said. 

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