As biotechs face monumental funding challenges and a stingy IPO market, young companies are investing in business models that have the potential to maximize the value of their drug candidates. In a move away from the one big-bang M&A event, several drug developers have opted for structuring themselves as multiple limited liability companies rather than a single C corporation.
A new wave of biotech companies--including Forma Therapeutics, Viamet Pharmaceuticals and Nimbus Discovery--have adopted the LLC model as a way to create focused entities based on the value of a particular target or set of assets. The hope for, say, Forma Therapeutics is to offer investors and employees multiple exit opportunities that could, in aggregate, equal a larger payday than one buyout event focused on perhaps one drug that may undervalue other candidates in the pipeline. Employees can also benefit from the tax advantages of stock option benefits from the LLC ventures.
"Don't think just about making life better for your investors," Albert Sokol, an attorney who has done legal work for Forma and Viamet, told The Wall Street Journal. "It's all about optimizing it for all your constituencies."
Yet investors and pharma partners have been wooed by the potential value in the LLC companies as well. In cancer drug development, for example, a biotech could set out to discover drugs for a specific target or class of targets and capture the value generated from that effort on a single LLC. When the next hot area of discovery emerges, that company can launch a new company to tackle those targets as well. Forma has done this through a string of of pharma partnerships focused on different areas of oncology. More outfits are certain to try to copy this success.
- read the WSJ article