November 20, 2011

Don't Take Candy From Strangers

And, don't believe everything (anything?) you read on the Internet.

I like Peter Culpepper. I find him to be intelligent and intellectually curious, methodical and process-driven, and efficient. Oh, and, in my view, he is a good CFO.

I've been a CFO in a past life. During several other past lives as a venture capital and private equity investor, I've been on audit committees as well as overseen CFOs and the finance function of companies. There are two kinds of CFOs: operations-focused ones and, for lack of a more precise term, Wall Street-oriented or focused ones. The former understand and care for the business. The latter understand and care for the transaction. Rarely does one encounter CFOs who effectively straddle both camps. These individuals are the exceptions that prove my rule.

Peter is one of those rare individuals. While he is operations-focused, he can deal effectively with Wall Street and big pharma (corporate development and M&A). How so?

Some time back, Peter and I were discussed the deal terms of the sale of a biotech to big pharma. He always had struck me as an operations-focused CFO -- by now, you should have guessed my bias; if your company or a company in which you have invested hires a former research analyst or investment banker as a CFO, sell your shares sooner rather than later. The transaction-oriented CFO, because of his or her experience, counterintuitively to most, has less of a handle or sense of value than the operations-focused CFO.

I was struck by Peter's detailed handle and insightful comments on the deal. It was clear to both of us that the biotech CFO had whiffed, and that whiff was going to cost shareholders. My view of Peter:

  • He's operations-focused (how many times have I said that?);
  • Peter plays the Wall Street game in so far as it needs to be played: he understands the necessity but not excessiveness of pay-to-play as it relates to equity research coverage;
  • He has handled the company's two shelf filings, given my comment above, well;
  • Peter is very polite with and accommodating of prospective institutional investors, but if they take him to be naive, too bad for them;
  • He, like the other principals, has a long-term view. Is a deal worth doing now? How does risk adjusted or probability adjusted deal value change over time?;
  • Pete has surrounded himself with smart financial advisers, particular the prospective lead investment banker, so what he doesn't know he figures out pretty quickly; and,
  • He's got a superb handle on valuation (construction, comps, parameter analysis) as well as dermatology and end-game deal structure.

I believe the company has turned down a big pharma licensing deal for metastatic melanoma. I also believe such a deal likely was valued in the low- to mid-hundreds of millions of dollars. Why? At the time they turned it down, despite what I am sure was a likely desire to check a traditional biotech box, management (likely led by Peter, but with strong input from the other principals and the financial adviser) instinctively felt the price was low, in a vacuum and in concert with the efficacy found in other indications. The floor for melanoma for them is $1 billion, given the Amgen-BioVex and Daiichi Sankyo-Plexxikon transactions.

No comments:

Post a Comment