Karolinska Development (STO:KDEV) has stopped investing in three of its portfolio biotechs and fully written off its outlay in the businesses to date. The decisions contributed to the valuation of the portfolio falling to SEK 1,277 million ($150 million), its lowest level since KDEV's IPO in 2011.
Stockholm, Sweden-based KDEV shaved 15% off the valuation of its portfolio by fully writing off Pergamum, Umecrine Mood and NeoDynamics and lowering the figures for other assets. Wound healing player Pergamum represented the biggest hit to KDEV, with more than half of the SEK 225 million drop in valuation being attributed to the biotech. Premenstrual symptom relief biotech Umecrine Mood accounted for SEK 59 million, while medtech player NeoDynamics was the source of SEK 10 million in fair value write downs. Other tweaks cut the portfolio value by SEK 36 million.
The significant adjustments to the worth of multiple investments mean the valuation of KDEV's portfolio has fallen by more than 25% in one year. In response, KDEV has chopped and changed its leadership and re-assessed its strategy, including how it values its assets. "Currently, the major part of the reported fair value is based on the [discounted cash flow] method. This method has been proven difficult for early stage companies where future cash flows and success rates are associated with high levels of uncertainty," KDEV CEO Jim Van heusden said in a statement.
KDEV is now working with auditors to find valuation methods "that are more transparent and less sensitive to incidental variations," Van heusden said. The valuation rethink is part of the turnaround strategy Van heusden was tasked with implementing when he took over as CEO from the short-lived Bruno Lucidi in March. Part of the plan is to cash out of 12 companies KDEV classes as its "opportunistic" portfolio to invest in its high-growth potential "strategic" assets. Pergamum, Umecrine Mood and NeoDynamics are all part of KDEV's opportunistic portfolio.
Each company received cash from KDEV over the past year--SEK 11.2 million was invested in total--but has now been written off. KDEV only owns a slice of NeoDynamics and Umecrine Mood--18% and 38%, respectively--but possess more than half of Pergamum. KDEV looked at other options before deciding a full write down was the best decision.
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