Funding Translational Medicine via Public Markets: The Business Development Company

37 Pages Posted: 25 Aug 2015

See all articles by Sandra Forman

Sandra Forman

Proskauer Rose LLP

Andrew W. Lo

Massachusetts Institute of Technology (MIT) - Laboratory for Financial Engineering; Santa Fe Institute

Monica J. Shilling

Proskauer Rose LLP

Grace Sweeney

Massachusetts Institute of Technology (MIT) - MIT Media Laboratory; Magyar & Bogle; Massachusetts Institute of Technology (MIT) - Lab for Financial Engineering

Date Written: August 21, 2015

Abstract

A business development company (BDC) is a type of closed-end investment fund with certain relaxed requirements that allow it to raise money in the public equity and debt markets, and can be used to fund multiple early-stage biomedical ventures, using financial diversification to de-risk translational medicine. By electing to be a "Regulated Investment Company" for tax purposes, a BDC can avoid double taxation on income and net capital gains distributed to its shareholders. BDCs are ideally suited for long-term investors in biomedical innovation, including: (i) investors with biomedical expertise who understand the risks of the FDA approval process, (ii) "banking entities," now prohibited from investing in hedge funds and private equity funds by the Volcker Rule, but who are permitted to invest in BDCs, subject to certain restrictions, and (iii) retail investors, who traditionally have had to invest in large pharmaceutical companies to gain exposure to similar assets. We describe the history of BDCs, summarize the requirements for creating and managing them, and conclude with a discussion of the advantages and disadvantages of the BDC structure for funding biomedical innovation.

Keywords: Business Development Company, Megafund, Biotech, Pharmaceutical, Translational Medicine, Drug Royalty Investment Company, Intellectual Property, Royalties, Corporate Finance

JEL Classification: G12, G29, C51

Suggested Citation

Forman, Sandra and Lo, Andrew W. and Shilling, Monica J. and Sweeney, Grace and Sweeney, Grace, Funding Translational Medicine via Public Markets: The Business Development Company (August 21, 2015). Available at SSRN: https://ssrn.com/abstract=2649260 or http://dx.doi.org/10.2139/ssrn.2649260

Sandra Forman

Proskauer Rose LLP ( email )

Eleven Times Square
New York, NY 10036-8299
United States

Andrew W. Lo (Contact Author)

Massachusetts Institute of Technology (MIT) - Laboratory for Financial Engineering ( email )

100 Main Street
E62-618
Cambridge, MA 02142
United States
617-253-0920 (Phone)
781 891-9783 (Fax)

HOME PAGE: http://web.mit.edu/alo/www

Santa Fe Institute

1399 Hyde Park Road
Santa Fe, NM 87501
United States

Monica J. Shilling

Proskauer Rose LLP ( email )

2049 Century Park East
Suite 3200
Los Angeles, CA 90067-3206
United States
310 284 4544 (Phone)

Grace Sweeney

Massachusetts Institute of Technology (MIT) - MIT Media Laboratory ( email )

20 Ames St.
Cambridge, MA 02139-4307
United States

Magyar & Bogle ( email )

4174 Dundas St. W.
Suite 211
Toronto, Ontario M8X 1X3
Canada

Massachusetts Institute of Technology (MIT) - Lab for Financial Engineering

Cambridge, MA 02142
United States

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