by Bruce Booth
instead of building drug discovery plays as singular entities (simple C-corp), we believe that taking a more modular approach to discovery engines through the creation of LLC holding company structures can optimize value. the figure below captures the set up:
the LLC itself is passive and non-operating. this makes for a more tax efficient model for institutional investors (a straight LLC can work well if individual investors are involved rather than VCs). the team and the technology platform itself are housed in a subsidiary C-corp (“Mgmt Corp”), which sets up all the Master Services Agreements and such. each drug program, right before generating valuable IP, should be moved into its own C-corp subsidiary of the LLC – the data packages and IP related to a program are all housed in their own entities. a variant of this subsidiary model is to put several related programs into a single subsidiary – assuming that the “exit path” for that basket of programs is the same then this makes sense.
…compare this LLC return profile to a traditional drug discovery company with the illustrative chart below. the dotted line below tracks the relatively flat valuation typically given to a drug discovery biotech over its Series A/B/C rounds; then, like a hockey stick, if things go well it exits at a great multiple.
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