The finances of Karolinska Development remain in a dangerous downward spiral as the company dropped to €136.9M (SEK 1,277 million), an unsatisfactory record for the company, the lowest valuation since 2011. For this purpose, the company decided to totally abandon investing in Pergamum, Umecrine and NeoDynamics AB, three biotech companies.
Karolinska’s reaction is well-defined: the company will focus on the portfolio businesses that have the potential to generate attractive returns while finding constructive solutions for the other portfolio companies.
For this purpose, Karolinska Development has decided to fully write off investments in these three biotechs, Pergamum, Umecrine and NeoDynamics AB. The company has taken it to the final step after resolving to cease further investments in the three companies. Pergamum value is written off with the amount of €14.37M (SEK 120.2 million), Umecrine Mood with €7.04M (SEK 58.9 million) and NeoDynamics AB measured up to €1.16M (SEK 9.7 million), all compared to the year-end 2014 valuations. Additional adjustments of the fair value of the portfolio add up to €3.9M (SEK -36.4 million).
The abandon of Pergamum hits Karolinska badly, as the company was one of the most advanced pipelines in Karolinska’s portfolio. The company possesses more than a half of Pergamum and it was named “first-in-class potential”.
Karolinska Development took a rigorous approach to the management of the portfolio to ensure that its expertise and capital are focused on the companies that have the potential to deliver the highest value. Furthermore, the company is evaluating the possibility to change the portfolio valuation principles, as Jim Van Heusden, Karolinska Development’s CEO, explained:
“Currently, the major part of the reported fair value is based on the DCF method (discounted cash flow). This method has been proven difficult for early stage companies where future cash flows and success rates are associated with high levels of uncertainty. We will together with the auditors look into alternatives that are more transparent and less sensitive to incidental variations that have a high impact on valuation.“
Judging from the stone silence of these three biotechs, which has been going on for a long time… we can imagine that their clinical developments are not going so well. Karolinska’s decision seems to validate this hypothesis.