Biotech firms warned they must use intellectual assets as loan collateral

Published on Saturday 31 January 2009 13:02

LIFE sciences companies urgently seeking an injection of new sources of finance have been warned that they must be willing to surrender significantly more of their assets as security.

Speaking ahead of a key investment forum in Edinburgh this week, technology sector legal expert Laurence Ward, who heads up the IT and IP division at Scottish legal firm Dundas and Wilson, claimed the current global economic turmoil is leading prospective investors to play hard ball.

"This means that the fledgling, or even the established, enterprise undergoing a beauty parade presentation must be willing to be ultra-flexible when it comes to giving up more of their intellectual assets," he said.

"To attract backing such intellectual property can be used as additional security. I realise this isn't an easy thing to do. But hard economic times call for hard business decisions."

Ward added that young businesses should also consider merging their portfolios in such uncertain times.

"If they're not prepared to look at sharing such intellectual assets, or merging, then I'm afraid that, despite there being money still around, such beauty parades can be a complete waste of time," he said.

Ward's comments will be echoed by Colin Morgan, managing director of medical giant Johnson & Johnson, who will tell the annual Scottish Enterprise life sciences dinner on Thursday that academics and pharmaceutical firms must change their attitude towards sharing research if Scotland is to compete against other countries such as the United States.

He will warn that the need for collaboration between scientists, established firms and emerging companies is particularly urgent given the global financial crisis, which is also taking its toll on the healthcare sector.

"We do have to be much more open to our approach of sharing ideas on a countrywide basis," he will say.

D&W is a past co-sponsor of the annual Bioscience Forum that takes place in Edinburgh on Thursday.

Ward's partner-colleague John Verrill is leading a D&W team advising Grant Thornton as joint provisional liquidator to Madoff Securities International.

Britain is second only to the United States when it comes to biotechnology breakthroughs but is faced by severe cash shortages this year.

A high-level group of entrepreneurs, business leaders and scientists, including Sir Christopher Evans and Sir Richard Sykes, have warned of a threatened financial meltdown in Britain's once-thriving biotech industry unless the Government steps in with alternative funding.

A reported string of unsuccessful clinical trials, along with a generally bleak market, hit particularly hard by the ongoing financial crisis, has made raising funds extremely difficult for life sciences developers.

Evans has estimated that up to a quarter of the UK's 400 biotech enterprises, employing a total of 15,000 people, could go under by the end of 2009 without an injection of funds.

He described it as a critical year to shape the UK biotechnology industry for the future. The group has petitioned the Prime Minister, Gordon Brown, and Lord Mandelson, the Business Secretary, to create two 500m funds.

The first would be funded by the Government and the second by venture capitalists and other investors. One would help consolidate smaller drug developers while the other would provide cash for larger biotechs to make key acquisitions.