Biotech Dilemma: When a Loan Isn't Non-Dilutive

Retrophin takes out a convertible note. As Dendreon has shown, taking on debt can be dangerous if the company can't pay it back. Investors should look for companies like Seattle Genetics and Regeneron Pharmaceuticals that have assets they can sell to slow the cash burn.

Jun 5, 2014 at 8:41PM

On this week's episode of Biotech Banter, we've got three related tweets about Retrophin's (NASDAQ:RTRX) announcement last week to take out a convertible note to help pay for its license of an orphan drug called Thiola from Mission Pharmacal.

While technically a non-dilutive financing that keeps investors' equity the same, multiple people on Twitter jumped in, pointing out that it's only non-dilutive if the company has money to pay back the loan at the end of the term. Otherwise, the lender will be repaid with shares of the company's stock.

Paying back a loan isn't a problem for companies that meet their revenue expectations. Unfortunately, there are plenty of examples of biotechs, such as Dendreon (NASDAQ:DNDN), where the lofty goals were never met. Dendreon has more than half a billion dollars in long-term debt on its balance sheet and still isn't profitable.

One way to avoid the dilemma of either taking out a loan, or diluting shareholder value though secondary offerings, is to find companies that have assets they can sell to slow the cash burn. Senior biotech specialist Brian Orelli highlights two in the video below: Seattle Genetics (NASDAQ:SGEN), which licenses out rights to use its antibody payload to other companies, and Regeneron Pharmaceuticals (NASDAQ:REGN), which has a deal with Sanofi to pay a large chunk of its R&D costs.

Or you could just invest in drugmakers with so much cash they hand it out to investors every quarter
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Brian Orelli and David Williamson have no position in any stocks mentioned. The Motley Fool recommends Seattle Genetics. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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