If you have an idea for an innovative new healthcare product, either a drug or a piece of equipment, or a therapy, you will need capital to develop and market that product. At SWK Holdings we specialize in providing capital to life science businesses that are developing new ideas.
Often, a life sciences company will find it difficult to obtain capital in the usual ways. For example, when trying to develop a new medication, a scientist cannot offer up the usual collateral that a bank or a traditional loan company would require to secure a loan.
Different Stages in the Development Process
Pioneering a new drug requires inventive capital solutions. Most people believe that pharmaceutical companies are rolling in money so they should have no problem footing the bill for new therapies. Whether or not that is true, the pharmaceutical companies don’t get involved in developing new drugs until close to the end of the process.
This discovery phase of drug development does not have such a need for capital solutions. The National Institutes of Health and other federal government entities have historically provided funds for the discovery stage. In addition, state governments have lately been more involved in funding the discovery part of drug development.
At the other end of the process in the late-stage development time frame, is where pharmaceutical companies get involved and put their money into the development of the drug. Again, the scientists won’t need capital solutions at this stage.
The Capital Gap
The time between the initial discovery research and the late-stage development is the time when novel capital solutions become critical. Sometimes charitable foundations will fund this stage because they are looking for drugs for a rare disease. But most doctors, scientists, and life sciences companies are left to look for funding on their own.
A smaller biopharmaceutical company that wants to develop a new medicine must also look for a financial company that can offer advanced types of capital solutions for the middle part of the development project.
Since investment companies are not subject to the same regulations as banks are, they can typically do things that banks can’t do. They can individually tailor their loans to companies.
One of the ways an investment company can help out with innovative financing solutions is to purchase the asset. Sometimes an investment company may purchase the drug being developed and fund it to market when it is ready.
Structured Financial Products
When a life sciences company needs major capital, it can seek out a structured financial product from a specialized company that focuses on life science innovations. This type of loan would not be available from a conventional bank.
Structured financial products usually involve combining financial assets, and then selling these financial assets to investors. One structured financial product is a credit-linked note. This loan is structured to shift some of the risk of the loan over to the investors. In return, the investors enjoy a high rate of return because their investment is riskier.