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Connecting The Dots posted on November 30, -0001

What are the latest options in creative and traditional financing, and how are companies increasing revenue streams?

“IT’S ALL WHITEWATER RIDES.”
That’s how Robert Keith characterizes entrepreneurial enterprise in San Diego. Keith, the recently appointed CEO and one of three original founders of Verus, a pediatric-oriented specialty pharmaceutical company, has experienced the joys and perils of a local startup business. But he and his team have shot through the rapids with success as they start tackling 2008.

In September 2007, Verus sold its pediatric asthma development programs to AstraZeneca, one of the world’s largest pharmaceutical companies, for a whopping $310 million.

“It was so exciting to have one of the largest players in the world knock on our door,” says Keith, 49. “The deal with AstraZeneca validated our strategy for development and put us in a robust financial mode. Now we can refocus our time and resources on our other emerging development programs, including those targeting unmet needs associated with related atopic diseases and conditions.”

With the divestiture, Verus can concentrate on respiratory and allergic diseases, primarily on four development programs. Two are line extensions to the company’s Twinject product, an auto-injector for anaphylaxis, a severe, life-threatening allergic reaction triggered by various antigens, including foods and insect stings. Twinject is the only auto-injector to pro--vide two doses of epinephrine in a single compact device, so that patients can carry one Twinject instead of two EpiPen auto-injectors. The other development lines focus on related allergic diseases.

One of the reasons Verus stands out from the biotech crowd is its two-pronged approach, says Keith. “We focus both on research and development, and on commercialization and launching products.”

With an initial investment of $98 million in 2003, including $78 million in preferred stock and $20 million in debt, and only three employees, the Carmel Valley–based company is staying afloat in a competitive field. They have launched their first product (Twinject), divested development and are pursuing additional product lines.

Financing Options Aplenty
While Keith can’t say what he sees in the crystal ball for Verus five years from now in terms of growth, he’s enthusiastic about the various options available for small companies in today’s business climate. There are the traditional paths of an Initial Public Offering (IPO) and other partnering opportunities, including M&A activity, as well as new and alternative sources of financing.

“There are many more angles on financing and capital today than five years ago,” says Keith. “Mergers and acquisitions are not nearly so robust as five years ago, and the finance community in San Diego wants to invest in the life science industry.”

Such sources of capital include hedge funds, private equity funds and crossover funds, which allow investors to sink monies into both public and private companies and allow small companies to grow.

“Companies have to ask themselves what is the best way to create value, through going public or an M&A, or through these alternative sources of financing,” says Keith.

For Nicole DeBerg-Nelson, CFO and vice president of finance for the Burnham Institute for Medical Research, to go public or not to go public is moot. As a nonprofit company, Burnham relies on government and private funding to conduct medical re-search with an operating budget of ap-proximately $100 million.

For Burnham, the financial challenge is to stay on top of the National Institutes of Health (NIH) funding trends by focusing on collaborative research and new, collaboration-based funding sources. As people live longer and medical problems become more complex, the NIH is funding more cross-institutional projects that address the multiple facets of medical issues.

While many other research institutes faced declining grant revenues last year, Burnham grant revenue increased by 5% in fiscal year 2007 and will likely grow by approximately the same percentage or more in fiscal year 2008, according to DeBerg-Nelson.

“More and more of our scientists are now focusing on projects that involve more than one principal scientist, area of expertise or research area, rather than on one small project by one scientist in one lab,” says DeBerg-Nelson, 41. “They often go outside the boundaries of the institute’s walls for collaboration and support.”

Burnham now generates approximately 43% of all of its grant revenue from large collaborative NIH grants—a percentage DeBerg-Nelson expects to keep climbing in 2008.

In addition, Burnham scientists also have extended their basic research to include the translational research at the start of drug discovery.To aid scientists in this translational research, the institute has applied for a $78 million grant to develop its library screening center.

A $20 million gift from South Dakota philanthropist Denny Sanford shows how collaboration can generate a healthy chunk of revenue in the nonprofit arena. The funds will be used to create two Sanford Children’s Health Research Centers, one at Burnham in La Jolla and one in Sioux Falls, S.D. The centers will combine scientific talent with state-of-the-art technology to discover cures for childhood diseases.

Other projects this year include establishing a campus in Lake Nona, Fla., that will focus on diabetes and obesity research and will expand the institute’s drug discovery capabilities. A 175,000-square-foot facility will also be constructed.

Riding Through
Economic Uncertainty
While the Burnham’s Lake Nona building may not be on your radar, chances are you’ve seen the Geisel library building on the UCSD campus. With a legacy of 62 years in San Diego, the Nielsen family has built many such iconic buildings in the area, from the aforementioned library to the Penguin Encounter at Sea World and the Aventine in La Jolla. And, according to Rebecca Pollack, CFO of Nielsen Construction California, the San Diego company expects it will be putting its stamp on many more buildings in the years ahead.

Nielsen has annual revenue of more than $34 million, and Pollack says the current housing slowdown will not ad--versely affect the company, which builds public works and commercial endeavors. In fact, Nielsen is looking to double its senior staff in the next two years, and in February of this year, it is moving its corporate headquarters to a 3,000-square-foot building in Point Loma, a building twice the size of its current space.

Pollack explains that Nielsen has ridden its way to success because its business model is unique.

“We act as advocates for our clients,” says Pollack, 44. “We are very frugal with our budget and with our clients’ budgets. That’s one of the reasons we have such a high percentage of repeat clients—60% of our business is repeat.”

Nielsen works with architects and subcontractors to offer its clients options that can save them money and extend their budgets by finding less expensive but good quality materials, or shortening the work schedule, for example.

In September, they were able to give a school a quarter million dollars, a sum that enabled the school to add a desperately needed parking lot and improvements to its outdoor area.

“We always think of the end user, whether it’s a child in class, a business student in a lecture hall or a hospital patient,” says Pollack. “It’s what we do.”

Evidently, that philosophy makes riding the business rapids with Nielsen an exciting and profitable journey.