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Finance & pharmacoeconomics glossary & taxonomy
Biopharmaceutical applications map: Guide to terms in these glossaries Site Map Related glossaries include Biopharmaceutical Alliances Business of biopharmaceuticals Biopharmaceutical law & intellectual property Ethics
A rounds: See under seed rounds
accredited investors: Under the Securities Act of 1933, a company that offers or sells its securities must register the securities with the SEC or find an exemption from the registration requirements. The Act provides companies with a number of exemptions. For some of the exemptions, such as rules 505 and 506 of Regulation D, a company may sell its securities to what are known as "accredited investors." The federal securities laws define the term accredited investor in Rule 501 of Regulation D [Securities and Exchange Commission, "Accredited Investors"] http://www.sec.gov/answers/accred.htm
angel investor: A wealthy individual who provides startup capital to very young companies to help them grow, taking a large risk in exchange for a potentially large return on investment. Many are successful former entrepreneurs who want to help other entrepreneurs grow their businesses. Investorwords.com http://www.investorwords.com/ Related terms: venture capital
annual reports: Guide to Financials, IBM "Anatomy of an Annual Report" http://www.ibm.com/investor/help/reports/anatomy.wss
B rounds: Come after A rounds/seed rounds.
behavioral finance: Julia Hanna, Behavioral Finance: Benefiting from Irrational Investors, HBS Working Knowledge, 2007 http://hbswk.hbs.edu/item/5648.html
burn rate: The rate at which a company (not yet making a profit) is going through its available money (which may come from angel investors, venture capital and other sources).. Generally expressed in cash spent per month.
venture and private equity circles, a clawback obligation represents the general
partner's promise that the managers will not receive a greater share of the
fund's distributions than they bargained for VC
experts glossary of private equity
convertibles: Securities (usually bonds or preferred shares) that can be converted into common stock. Convertibles are great for investors demanding greater potential for appreciation than bonds give, and higher income than common stocks offer. [Investopedia.com] http://www.investopedia.com/terms/c/convertibles.asp Related terms PIPES, warrants
dilution: Dilution has two meanings in finance. The first is the process by which an investor’s ownership percentage in a company is reduced by the issuance of new securities. The second is the effect on earnings per share and book value per share if all convertible securities were converted and all warrants or stock options were exercised. M & A terminology, Wallingford Capital http://www.wallingfordcapital.com/glossary.htm Related terms: full ratchet, ratchet
down rounds: Subsequent financing events in which the company is valued lower than it was initially -- have been unheard of over the last four or five years, but they were well known in the early '90s, when VC money was going mostly to biotechnology companies. When the market was going up very quickly, even companies who should have had down rounds because of bad results were able to get higher valuations. Now, with an uncertain and choppy market, you could be a perfectly good company, hitting your numbers and executing on your business plan, and you could still end up with a down round through no fault of your own. K. Klein "You've got to have real customers" (interview with Richard Chernicoff, Business Week Online June 4, 2001 http://www.businessweek.com/smallbiz/content/jun2001/sb2001064_524.htm Related term: washouts, washout financings
drag along rights: Investopedia definition http://www.investopedia.com/terms/d/dragalongrights.asp
The process by which V[enture C[apitalist]s conduct research on the market
potential, competition, reference interviews, financial analysis, and technology
assessment. Usually divided into business due diligence and legal due diligence.
Netpreneur Exchange, Glossary of terminology http://www.netpreneur.org/funding/FundingArchive/mava2001/Glossary.html
due diligence: Business of biopharmaceuticals
companies that are able to begin operations but are not yet at the
stage of commercial manufacturing and sales, early stage financing supports a
step-up in capabilities. At this point, new business can consume vast amounts of
cash, while VC firms with a large number of early-stage companies in their
portfolios can see costs quickly escalate. Investopedia http://www.investopedia.com/exam-guide/cfa-level-1/alternative-investments/venture-capital-investing-stages.asp
equity investments: Equity investments are usually motivated by the prospect of ROI return on investment. Related terms: exit strategies, private equity, venture capital
exit strategies: Ways for investors to cash in on their investments in a company. May be IPOs, acquisitions. Related terms: IPO Initial Public Offering, Mergers & Acquisitions M&A
financing: See angel investors, convertibles, mezzanine, PIPES, venture capital, warrants. Related terms: Biopharmaceutical Alliances
full ratchet: Enables early round
investors to preserve the value of their initial investment in a down round.
Essentially, the early ratchet-protected investors get additional
"free" shares so that their effective share price equals the new lower
price. Bury the Ratchets, Colin Blaydon and Michael Horvath, Venture Capital
Journal, Jan. 2002, Tuck School of Business, Dartmouth
See also dilution, antidilution Related term: ratchet
funding of genomic research: In May 2000 we [Stanford group] initiated a survey of organizations that fund genomics research throughout the world, funded by a grant from Burroughs Wellcome Fund to the Stanford [University]- in- Washington program. The purpose was to do a one- time cross- sectional analysis of funding, and to couple that to an analysis of trends, based on analysis of publicly available data. The trends include data on private R&D funding, on patent ownership, and on market value of publicly traded firms, which give a glimpse of some underlying trends in the financial inputs and scientific outputs of genomics. Main conclusions and inferences from the data include the finding that the private sector (pharmaceutical, biotechnology, and genomic startup firms) is a bigger funder of genomics than the public sector (government agencies and nonprofit organizations). [Robert Cooke- Deegan et. al., World Survey of Funding for Genomics Research: Final Report to the Global Forum for Health Research and the World Health Organization, September 2000] http://www.stanford.edu/class/siw198q/websites/genomics/finalrpt.htm
Health Care Financing Administration HCFA (US): Now Centers for Medicare and Medicaid Services http://cms.hhs.gov/
The Common Fund’s Health
Economics Program, launched in the wake of national health care reform, aims
to support research on how specific features of the structure or organization of
health care delivery organizations and reimbursement systems influence how
health care technologies are adopted and combined by health care providers, how
they are applied or used for specific patients, and how those features could be
modified to enhance efficiency. Program initiatives include: Economics of
Prevention (R21) - will support research projects on economic analyses of
prevention and health Science of
Structure, Organization and Practice Design in the Efficient Delivery of
Effective Healthcare (R21) - will support exploratory and developmental
research projects intended to increase efficiency in the production of health
and delivery of health care. Health Economics, NIH Common Fund http://commonfund.nih.gov/healtheconomics/
IPO Initial Public Offering: Occurs when a company first sells its shares to the public. [Securities and Exchange Commission, US "Initial Public Offerings" 2000] http://www.sec.gov/answers/ipo.htm The number of IPOs in 2001 was down sharply from 2000.
Strategies for going public, Deloitte & Touche http://www.deloitte.com/vc/0,1323,sid=2304&ar=&cid=3415,00.html
liquidation preferences: Ensure that in the event of a sale, investors get a certain return on their money before anyone else gets a cent. Liquidation Preferences: What You May Not Know, Colin Blaydon, Michael Horvath, Venture Capital Journal, March 2002, Tuck School of Business, Dartmouth http://mba.tuck.dartmouth.edu/pecenter/research/article_liquidation.html
liquidity event: See exit strategy
Mergers and Acquisitions M & A: In the 1990s, the value of the mergers undertaken in the pharmaceutical industries skyrocketed, growing from $30 billion in 1994-1997 to $80 billion in 1998, $130 billion in 1999 and an estimated $200 billion in 2000. Some of the recent deals have been particularly large.
a merger involves the combination of two companies in which
one acquires the other. A merger can be distinguished from consolidation,
in which a new separate entity is created. Narrower term: reverse triangular merger
Net Present Value (NPV) and Internal Rate of Return (IRR): Used primarily at capital intensive and mature companies, NPV and IRR measures are more thorough than traditional ROI calculations, because they take into account the expected life of an investment, depreciation and the cost of capital. Complex approaches to quantifying these measures include accounting for varying discount rates with the changes in risk of an investment and the reinvestment of cash flow from an investment. [Ian Springsteel "Money Talk: Financial Glossary" CIO Magazine Dec. 15, 2000/Jan. 1, 2001 Related term: real option valuation
opportunity costs: The true cost of something is what you give up to get it. This includes not only the money spent in buying (or doing) the something, but also the economic benefits (UTILITY) that you did without because you bought (or did) that particular something and thus can no longer buy (or do) something else. Economist, Research Tools A-Z http://www.economist.com/research/Economics/alphabetic.cfm?letter=O
PIPEs Private Investments in Public Equity: An increasingly popular form of biotech financing ($4 billion in 2000, more than double 1999). PIPEs are private placements, used to obtain money from a small group of investors relatively quickly (often no more than a week or two). [Heidi Nasr "PIPEs, not pipelines, brought biotechs cash" TheDeal.com Jan 3, 2001] Related terms convertibles, warrants
partial acquisition: Large pharmaceutical companies have increasingly established alliances with bioscience companies, often in the context of a full or partial acquisition, in order to access innovative technology at an early stage. [Merlin Biosciences, UK "How we realise our investments" 2001] http://www.merlin-ventures.co.uk/company/about_us_how_realise.html
"pay to play": A follow- on financing by an existing shareholder in a cramdown round in order to restore their position. [Woodside Fund, Glossary of Venture Capital Terms, 2001] http://www.woodsidefund.com/ent/res_glossary.html
pharmaceutical fees: Amounts charged to the patient or third-party payer for medication. It includes the pharmacist's professional fee and cost of ingredients, containers, etc. [MeSH, 1968] Narrower term: prescription fees
pharmacoeconomics: [The journal] PharmacoEconomics promotes the continuing development and study of health economics, pharmacoeconomics and quality-of-life assessment as applied to optimum drug therapy and health outcomes, providing a practical economic background to informed clinical prescribing decisions and allocation of healthcare resources. "Aims and scope", Pharmacoeconomics, Adis International >
Pharmacoeconomics is an entry term in MeSH for Pharmaceutical economics: Economic aspects of the fields of pharmacy and pharmacology as they apply to the development and study of medical economics in rational drug therapy and the impact of pharmaceuticals on the cost of medical care. Pharmaceutical economics also includes the economic considerations of the pharmaceutical care delivery system and in drug prescribing, particularly of cost-benefit values. (From J Res Pharm Econ 1989;1(1); PharmacoEcon 1992;1(1)) [MeSH, 1994] Related terms: drug costs, pharmaceutical fees, prescription fees
prescription fees: The charge levied on the consumer for drugs or therapy prescribed under written order of a physician or other health professional. MeSH, 1991Broader term: pharmaceutical fees
Pharmaceutical pricing practices, utilization and costs,
Assistant Secretary for Planning and Evaluation, Health and Human Services, US,
Aug. 2000 http://aspe.hhs.gov/health/reports/drug-papers/Kemp2.htm
private equity: When equity capital is made available to
companies or investors but not quoted on a stock market. The funds raises
through private equity can be used to develop new products and technologies, to
expand working capital, to make acquisitions, or to strengthen a company’s
balance sheet. [Investopedia] Related terms: angel investors, early stage, equity investments, seed
rounds, venture capital
profit hunts: Where can companies, and their shareholders, find sustainable relief from the profit squeeze? We examined the strategies of 30 companies that managed to substantially improve margins. And we found at least one answer: short, targeted "profit- hunt" programs that rely on a systematic approach to identifying revenue enhancement and cost reduction for long-lasting profit improvement. Such efforts rally the entire firm around profits, rather than around function, product or sales geographies. Many are achieving remarkable results.
While the notion of a 6- to 12-month program to track down margin improvement opportunities isn't new, these companies found much of their quarry by new means and in unexpected places. Head count and general expense reduction, practices widely stressed in the past, accounted for only a fifth of total profit improvements at companies studied. Fully 80% came from either revenue- based initiatives, or working with suppliers or customers to reduce costs, or improving asset utilization. Finding Hidden Profits, Bain Results Brief, Dec. 6, 2002 http://www.bain.com/bainweb/publications/Written_By_Bain_detail.asp?article_id0...
quids: Non-monetary agreements, as part of a licensing or other agreement. Useful in reducing burn rates.
reduce the price at which venture capitalists can convert their debt into
preferred stock, which effectively increases their percentage of equity. Often
referred to as an "anti-dilution adjustment." VC
experts glossary of private equity
Related terms: dilution, anti- dilution; down rounds
real option valuation: The real options method applies financial options theory to quantify the value of management flexibility in a world of uncertainty. If used as a conceptual tool, it allows management to characterize and communicate the strategic value of an investment project. Traditional methods (e.g. net present value) fail to accurately capture the economic value of investments in an environment of widespread uncertainty and rapid change. ... The real option method enables corporate decision- makers to leverage uncertainty and limit downside risk. [Ulrich Hommel, Real Options Homepage, Germany] http://www.real-options.de/
Return On Investment ROI: Profit (or loss) on an investment, often expressed as a percentage.
reverse triangular merger: Investopedia definition: http://www.investopedia.com/terms/r/rtm.asp
risk: Managing risk is a critical component of sound R&D decision making. In drug development, questions surrounding technical feasibility, development timelines, and the market environment loom over every decision.
risk, reducing: See Drug discovery & development backup entities; Bayesian clinical trials
risk capital: See venture capital.
seed rounds: Initial funding. may be supplied by family, friends, angel investors and/ or venture capital. Also called A rounds (after Series A preferred stock). Broader term: financing
stage financing: The
first stage of venture capital financing. Seed-stage
financings are often comparatively modest amounts of capital provided to
inventors or entrepreneurs to finance the early development of a new product or
service. These early financings may be directed toward product development,
market research, building a management team and developing a business plan.
serial entrepreneurs: An entrepreneur who creates a series of new companies. [more at WordSpy] http://www.wordspy.com/words/serialentrepreneur.asp
Good to have on your team if looking for venture capital.
Strategic Management of Resources and Portfolios 2008 Insight Pharma Reports
technology transfer: Law & intellectual property
tender offer: A takeover bid which offers to buy stockholders shares at a higher than market price to encourage them to sell.
term sheet: A funding offer from a capital provider. It lays out the amount of an investment and the conditions under which the investors expect you to work using their money. [David Newton "Translating the Term Sheet" Entrepreneur's Start- ups Magazine Sept. 2001] http://www.entrepreneur.com/Your_Business/YB_SegArticle/0,4621,292292--...l
tranche: A portion of a larger financial transaction.
Difficult (to impossible?) to do for companies with no
revenue stream yet.
venture capital: Money provided by professionals who invest alongside management in young, rapidly growing companies that have the potential to develop into significant economic contributors. Venture capital is an important source of equity for start- up companies. Professionally managed venture capital firms generally are private partnerships or closely- held corporations funded by private and public pension funds, endowment funds, foundations, corporations, wealthy individuals, foreign investors, and the venture capitalists themselves. National Venture Capital Association website http://www.nvca.org/
venture debt: Silicon Valley Bank, 2004 http://www.sandhill.com/conferences/pdf/software04_014.pdf
venture leasing: Venture leasing firms specialize in leasing of equipment to companies at discounted rates in exchange for equity. For example, a start- up may be able to obtain an inexpensive lease on $1 million worth of laboratory equipment for only $100,000 worth of warrants (like options). This can be an effective means of leveraging small amounts of equity and conserving cash. Harvard Biotechnology Club, Startup Resources http://www.thebiotechclub.org/industry/startup/resources_ventlease.php
warrant: A security entitling the holder to buy a proportionate amount of stock at some specified future date at a specified price, usually one higher than current market. This "warrant" is then traded as a security, the price of which reflects the value of the underlying stock. Warrants are usually issued as a "sweetener" bundled with another class of security to enhance the marketability of the latter. Warrants are like call options, but with much longer time spans -- sometimes years. Washington Post.com http://www.washingtonpost.com/wp-srv/business/longterm/glossary/n_z/warrant.htm Related terms: convertibles, PIPES
washout round: The
wash-out round is often the final financing opportunity available to
entrepreneurs before a company is forced into bankruptcy. Wash-out rounds often
companies are unable to achieve performance levels that have been set in order
to receive additional financing from investors.
Also know as "burn-out round" or "cram-down round".
white space: large opportunities where a company has no identifiable competitors, and a market or technology lead of at least twelve months. Artiman Strategy, Artiman Ventures http://www.artimanventures.com/
Empty space unfilled by companies in a competitive landscape. Related term: market research
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