UBS moves aggressively to win biotech business

By Toni Clarke - DealTalk

BOSTON (Reuters) - UBS (UBSN.VX)is aggressively seeking out business in the biotech sector, risking its capital to win deals amid cut-throat competition.

So far this year UBS, which recently announced thousands of job cuts, has completed four "bought" biotech deals, taking risks few other banks are willing to take.

In a bought deal, a bank or group of banks guarantee to buy shares from a company at a pre-set discounted price, betting they can re-sell them overnight for a higher price.

While not uncommon in established sectors such as mining and finance, bought deals are rare in biotech, where a company's stock can plunge or soar based on difficult-to-predict clinical trial results.

"Given the state of the market a lot of banks are uncomfortable participating in bought transactions because they don't know how to price them," said Sage Kelly, a managing director in the Swiss bank's healthcare investment banking group.

Which is not surprising. Even industry giants such as Swiss drugmaker Roche Holding AG (ROG.VX), can get it wrong.

Roche recently paid $46.8 billion, or $95 a share, to acquire the portion of biotech company Genentech it did not already own, betting that a clinical trial of Genentech's cancer drug Avastin would prove successful and expand the drug's sales.

It did not, and Roche's shares fell more than 10 percent.

UBS, however, is confident of its judgment. So far this year it has raised a combined $218 million for the biotech companies InterMune Inc (ITMN.O), Allos Therapeutics Inc (ALTH.O), Seattle Genetics Inc (SGEN.O) and Geron Corp (GERN.O).

The value of the deals is tiny relative to the bank's overall business. But it reflects a broader push by UBS into bought deals as it scrambles to stem its losses. Chief Executive Oswald Gruebel said earlier this month the bank will post a first-quarter loss of nearly 2 billion Swiss francs ($1.7 billion).

In total, UBS has completed 10 bought deals this year, worth $2.6 billion, according to Dealogic, putting it at the top of the league table with a 24 percent market share.

BUILDING FOR THE FUTURE

For biotech companies that can get them, bought deals are an attractive financing option. True, the shares are sold at a discount -- usually between 10 and 15 percent, UBS says -- but the company receives its money regardless of what happens to the stock. If the price plummets, it is the bank that is left holding the shares.

"Dozens of companies want to do these deals," said Clay Siegall, chief executive of Seattle Genetics, "but there is risk for the banks so no one is really hustling to do them."

Except UBS.