Karolinska Development sees value slashed in half

Karolinska Development, the investment arm of Karolinska Institute, has seen its portfolio value slashed in half as new accountancy practices take hold and it divests in pain relief firm Pharmanest.

The Sweden-based investment unit, which invests in Karolinska Institute spinouts and life sciences firms from around the country, is moving to what it called a “prudent and representative approach” in valuating portfolio firms, as laid out in the International Private Equity and Venture Capital guidelines. Moving forward, the company will be basing its valuations for early-stage biotechs on the most recent round of investment as opposed to the discounted cash flow method.

The result is that Karolinska will see SEK 368m ($42.75m) disappear from its overall fair value as the new approach takes hold.

In addition, Karolinska has announced its divestment in Pharmanest, a gynaecology firm started by Stockholm and Karolinska professors to target female pain in labour and miscarriages. The firm issued SEK 30m in shares to Östersjöstiftelsen, Recipharm Venture Fund and Praktikerinvest, which are taking over from Karolinska’s departure.

With Pharmanest’s departure, the university investor will lose another SEK 352m of its overall value. On a conference call announcing the new accountancy methods, Karolinska CEO Jim Van Heusden refused to clarify whether the exit was orderly or unplanned. Van Heusden also did not clarify how much cash it made out of the exit. However, Karolinska’s cash reserves were down 13% from last quarter, indicating that it didn’t receive an upfront payment for the deal.

In total, Karolinska’s value has fallen from SEK 1,277m ($148m) in Q1 to SEK 679m ($79m) in Q2.

Karolinska’s value could yet fall further. In 2012, Karolinska established KDev Investments, a portfolio of 13 of Karolinska’s companies to protect against losses valued at the time to be SEK 1.5bn. UK-based Rosetta Capital took a 7% stake in the firm, worth $33.7m. Applying the same approach to the KDev would result in a SEK 359m drop in Karolinska’s fair value, leaving it at just SEK 320m ($37m).

The company has seen its share price tumble over the past year, dropping from $22.50 a share in July 2014 to low of $9.65 shortly after the announcement. It has since recovered to $10.40 a share.

Jim Van Heusden, said: “We are making good progress in executing our strategy to create a more focused portfolio of companies which we believe have the greatest potential. We are confident that the decisions we have announced today put Karolinska Development in a much stronger position to generate value for its shareholders.”