Unlocking Value in Life Sciences: RM Global Partners’ Expertise in Transformative Spin-Outs

RM Global Partners is a life sciences investment banking and investment management firm with a 25-year + history of supporting innovative biopharma and medtech companies. We are specialists in structuring value-added spin-outs driven by innovative life sciences technology, and share lessons learned that drive success.

By “spin-out”, we in this case refer to the outright divestiture of a material asset or business to a third party, as opposed to a tax-free distribution to the seller’s own shareholders.

Spin-outs in life sciences demand a unique approach & expertise – most corporate spinoffs that you hear about tend to be mature larger businesses, which are priced according to standard private equity parameters. The technology spin-out world is where it gets interesting. There are substantial arbitrage opportunities where biotech & medtech assets can be valued inefficiently. Connecting the right assets with the right buyers is an art, requiring a deep dive into the strategic landscape and insight into the financing options these businesses can access.

Research indicates that corporate spinoffs unlock value. The drivers include:

• Investor Awareness of assets that were deemed non-core by the parent but can now be valued with greater fidelity as a standalone business.
• Efficient Capital Allocation to these assets versus competing with other needs.
• Energized Management, whose incentives are more precisely aligned with the performance of the new business.

There are special considerations in spinning off a biotech or medtech business, which can carry substantial development expenses at a clinical or early commercial growth stage. Here are key elements that go into RMG’s assessments and advice:

• Technology matters: The core technology must be differentiated, via IP or trade secrets, with the potential to be first-in-class or best-in-class. In practical terms, this means that the parent invested substantial amounts but faces an inflection point where the investment for the next phase is of a different magnitude. The technology should be developed with active input from the parent’s marketing team, reflecting a defined commercial opportunity, rather than early R&D.
• Stage Matters: The assets must be at a stage of development where they create enough critical mass for an independent business. This means that they can attract financing and management talent to go forward.
• Leadership matters: As it does in every venture! One of the most compelling value-drivers we encountered is when the division head of a major multinational and his CMO left their positions to lead the spin-out, effectively betting their careers on the technology. The team brought sophisticated C-suite management experience and entrepreneurial commitment to the spinout from day one, laying groundwork for successful institutional & strategic financings. The management plan should enable the spin-out to execute immediately on consummation of the deal.
• Financing matters: A life sciences technology spin-out faces a unique financing path regardless of market conditions. Generally, the logical backers are venture and early growth capital investors, rather than private equity investors. Unlike PE investors who are often set up to search for spin-outs, venture investors may be less attuned to this type of deal. Presentation and structuring are critical. RMG quarterbacks processes that in parallel identify strategic and financial sponsors, and we dynamically pair them with each other.
• Structure matters: Multiple questions need to be addressed here. Will the technology & IP be assigned or licensed? Will the parent retain any equity? Will the equity in the new entity be issued in the form of common and/or preferred stock? Will an equity compensation program be in place to incentivize management? How will corporate governance balance competing interests? We have a systematic approach to tailoring the structure to the technology and objectives of the parties.
• Parent Support matters. A well-developed transition plan is essential, including transition services agreements, shared access to key platforms for manufacturing and clinical support, as well as a continuing role in development as appropriate. We bake these plans into the tailoring of the foregoing structure as much as possible.

RM GLOBAL SELECTED SPIN-OUT CASE STUDIES

• Strategic and financing support for spinout of novel imaging technology from major multinational device & pharma company, including securing of $22 million institutional financing for financing of FDA trials.
• Strategic and financing support for spinout of commercial stage regenerative medicine device platform from cardiovascular division of major multinational device company; including expansion of market into orthopedic applications and securing of institutional private equity and venture debt.
• Spinout of specialty pharma division of leading Asian aesthetics company, identifying strategic purchaser and supporting transition of operations.
• Spinout of CAR-T oncology company from Incubator backed by two major multinationals & a leading biotech investment manager, providing active support as an investor and board member, supporting cross border transition to fully integrated institutionally backed company concurrently with acquisition of a clinical stage asset.
• Orthobiologics /CDMO Spinout – In process & confidential.