Biotech Values

[GrthzGd]

[somewhat OT] Thanks, I've long been curious about the lasting effects, if any, of Seragen on the BU endowment. The story omits the amount invested by BU in Seragen. However, one can infer an IRR from the numbers about Silber's stake. He put in $1.7M which, at the time of the story was worth $44K. Since the FDA did in fact approve Ontak--in 1998, under the earn-out, the value of his stake would have risen to $100K, so he lost 94% of the amount invested.

Given that BU's stake was then worth $8.4M, that means they invested $140M total, so the BU endowment must have been $700M. Recently, BU's endowment had rebounded to $1.5B, or more than double the pre-Seragen level. BU lost one fifth of its net, liquid worth, while the Silber family lost half of theirs. Obviously, BU has recovered.

I run a small fund that invests exclusively in small private companies, including biotech. We are showing a net positive return from four successful exits (out of 18 companies total) since inception in 2006. The eight that have not been acquired, IPO'ed or failed are doing well, some quite well. The lesson that many drew from the publicity surrounding the Seragen debacle--that investors should avoid small, private biotechs--was the wrong one IMO. The correct lesson (among others concerning selection, due diligence and timing), is that it is generally unwise to under-diversify.