Alis Biosciences’ plan is a familiar tactic in the private equity world, but the firm will instead be listed on the public markets “in due course.”
Taking a page out of the private equity playbook, a new fund has emerged to recycle over $30 billion of capital “trapped” in failed public biotechs.
London-based Alis Biosciences launched on Friday with a pledge to return to shareholders capital that’s invested in publicly listed companies that have suffered a clinical failure or other stumbling block, with nowhere to turn.
The plan—which is carefully laid out in three different structures—is a familiar tactic in the private equity world. But Alis will instead be listed on the public markets “in due course,” according to the Friday release.
“We founded Alis Biosciences to alter the status quo, where tens of billions of dollars of investors’ funds are trapped in moribund listed life sciences and biotech companies,” said Alis founder and board member Nicholas Johnston in a statement. “Our highly experienced team work collaboratively with shareholders, management, and boards, to provide the optimum mechanism to return capital to shareholders, while also allowing stakeholders the option to further develop residual science and IP where there is potential to do so.”
Alis is targeting 300 listed, development stage biotechs or life sciences companies that have “experienced clinical, regulatory or commercial setbacks.” The firm estimates these companies have a combined $30 billion on their balance sheets. But individually they have small market caps and low cash reserves. After a clinical failure, companies face a tough decision. Among the options available, they can advance another candidate, sell or liquidate.
Alis explained that if they opt to go after another target in their pipeline or merge with another company, shareholders’ equity is heavily diluted. Plus, shareholders are forced into something very different from what they originally signed up for and “are left with no option but to follow the direction of management or the board, while tens of millions of dollars of investor capital remains on the balance sheet.” Bankruptcies can be time-consuming and expensive, further draining cash reserves. The IP is also typically left untapped.
Alis’ idea is to offer another option, while also providing hope that any residual science and intellectual property could someday find a new home. The firm will find a company and mutually agree on a path forward, which will start with taking the company private in agreement with shareholders. The delisted company’s cash and IP will then be held in a special purpose vehicle to be managed by Alis. Cash can then be returned to shareholders.
As for the remaining science and IP, this is where the three different structures come into play. Under Structure A, most uncommitted cash would be returned and any residual work is sold back to interested shareholders. Alis will keep a stake in the resulting company and share that money with the remaining shareholders.
Structure B returns most of the cash, leaving enough to wind down the company while Alis hangs hang on to the IP. This is a quick solution and would be faster than a bankruptcy proceeding.
The final Structure C will be offered only once Alis is listed on the public markets. Under this plan, Alis would keep about 40% of the cash invested in the company to allow the development of further clinical programs. The remaining cash would be distributed to shareholders along with equity interest in Alis. If the programs are successful, proceeds will be retained by participating contingent value rights and in any shares in Alis.
“In this challenging financial market environment, there is a need for greater creativity to find answers to this USD$30 billion problem,” Annalisa Jenkins, chair of Alis, said in the statement. “This needs to be solved if capital is to be effectively recycled within the capital market ecosystem to finance exciting new science that has the potential to succeed and deliver investor returns.”
Alis is not the only firm that has targeted failed or struggling biotechs. Concentra Biosciences, headed by the elusive investor Kevin Tang, has over the years made bids to buy out companies that are struggling. In turn, the failing company is wound down with capital returned to investors.
One of the most recent efforts was Acelyrin, which rejected Concentra’s offer in March. Tang’s firm typically steps in with an unsolicited offer amid another buyout attempt, as was the case with Acelyrin. Concentra also made a bid for Pliant Therapeutics in March, which adopted a poison pill strategy to deflect the buyout.
