GHP October 2015

ghp October 2015 | 35 Few doubt that genuinely innovative treatments should command prices to reflect their innovation and risk – at least within the patent system we have now – and there is little to think why the valuations of many biotech businesses who are involved in cutting edge areas should be affected by a business whose only drug came off-patent decades ago. That would be the rational response, but markets do not always respond rationally. In the face of potentially value-impacting measures like price controls, one would expect the valuation of narrow-focused biotech businesses with long development timescales to differ wildly from a diversified and mature big pharma business. Whilst pre-election threats of impending price controls are likely to be hot air in the long run, the general turmoil has certainly caused some investors to retreat from the market and that is likely a good thing. Momentum should not drive valuation and volatility re- minds everyone that risk does and should scare away investors who, on reflection, don’t understand what they’re getting into and whose investment approach is predicated on nothing more than a greater fool investment strategy. Sensible prices are required for a sustainable capital markets and wild optimism is as bad as pervasive negativity. It’s encouraging that, as of yet, the crossover investors who have come to anchor the market in recent years show little sign of abandoning the sector. Whilst paper valuation gains certainly help their NAV calculations and thus the fees they obtain from managing money, many crossover investors understand the longer term potential of these businesses and are buying accord- ingly. Thus being a leading indicator on the ability of a business to attract funding. The corollary is that if crossover investors do start to withdraw, it will likely herald a reversal in the market and make it more difficult for many businesses to go public. This will place pressure on VC investors to play more of the traditional anchoring role in supporting an IPO and in turn this is likely to impact valuations at private and IPO rounds. Many VCs have continued to raise funds which they can deploy and use as leverage to drive favourable valuations and these experienced investors know how to get businesses onto the market or sold. In short, even in the absence of crossover in- vestors one shouldn’t expect a dramatic tightening, but instead a more discerning and lower priced market. If this undermines the ability of VC funds to raise money then it could become a serious problem while, on the other hand, if not enough businesses are able to raise public money there appears to be little downside should the market got a touch more selective. Nooman Haque, Director of Healthcare & Life Scienc- es, Silicon Valley Bank UK Branch Nooman Haque is the Director of Healthcare & Life Sciences with Silicon Valley Bank’s UK Branch. He leads a team dedicated to supporting early, growth- stage and established businesses in all sectors of life sciences. Nooman is responsible for developing new relationships, identifying lending opportunities and working with the global life sciences team to support companies with all aspects of their business. He is actively involved within the sector, sitting on the BIA’s Finance and Tax Committee and is a frequent partici- pant on panel and seminars. funding & investment