2010 Achievements and 2011 Outlook: Safeguard Scientifics, Capital Markets, Regulatory Compliance and more

Posted by | January 17, 2011

Happy New YearLast year around this time, as we headed into 2010 and were making plans for the coming year, we were in the midst of the most significant market meltdown since 1929-1938, a lingering credit crunch, an economy hindered by persistent unemployment and a weak housing market, which was complicated by regulatory uncertainty that blanketed our key financial and health care markets.

We made our plans based on that environment and concentrated on the factors within our control to enable growth in our business.  Given that environment, 2010 was a year of great achievements for us — we had two significant well-timed exits, two life sciences partner companies IPO’d, we significantly strengthened our balance sheet and positioned our company to opportunistically add new companies to our partner roster. Shareholder value increased by nearly 70%.

One of our primary goals is to build value in our partner companies, and on the whole, our partner companies performed well in 2010.  Aggregate revenue of our partners grew from $262 million in 2009 and approached $400 million for 2010.  Some partners strengthened their managements to boot.  In September 2010, we provided a round of capital to Good Start Genetics, an innovative, next generation gene sequencing firm intending to move to revenue stage in 2011.

As the year progressed, capital markets staged a decent comeback, although not giving back all the ground lost over the past few years.  By the end of 2010, we even saw an improvement in the M&A and IPO markets. This recovery supported our plan to realize some valuable exits, as both Clarient and Avid Radiopharmaceuticals were highly valuable deals with large partners that yielded significant cash. That cash is important in helping us achieve our goal to replenish our holdings.

We sought to improve our financial strength in 2010, and even before we realized approximately $180 million in net cash proceeds from our exits, we restructured our convertible debt.  Overall, in 2010, our balance sheet was significantly strengthened. Debt to equity stands at better than 1:3 When the time is right, we plan to augment our capital with additional exits and are exploring alternative sources of capital.  As we add to our track record of valuable exits and capital deployment, our valuation and our ability to attract a variety of forms of capital will continue to improve. 

While adding modestly to our ranks of new partner companies over the past couple of years, we are now better prepared than ever to add high potential new companies to our ranks. With ample cash, a refinement of our target focus areas, and recruiting to add additional talent to our deal teams, the results sought from this year’s game plan is the same as the results from last year’s game plan; increase our cash position and the shareholder value of our company.

I would note the following as particularly interesting things to watch as we move forward in 2011:

  • Regulatory Compliance: Expect opportunities arising from the overhaul in regulatory compliance in health care and financial markets.
  • Integration of IT in life sciences: This will be a continuing theme, and something to which we’ll see many more companies, large and small, recognizing. Clarient, as an internet-enabled cancer diagnostics company, is a prime example of emerging combinations that leverage diagnostics with IT… the first company of its kind to deliver an FDA approved image over the Internet.
  • Impact of Angel Investors: Super-Angels took the industry by storm in 2010. As they exhaust their Angel Investor seed capital, we expect to see a growing pipeline of stronger, more mature companies in the market for institutional capital. This will spell opportunity for firms with capital to deploy.

For those partner companies poised to realize potential exits in the near future,  the exit environment, while not soaring, certainly is encouraging, based upon the activity seen during the later part of 2010 and the amount of “tire kicking” going on in the market as a whole.

We can’t know what lies ahead, but, once again, a thoughtful plan well executed by talented people will produce rewards. Like in 2010, we expect to keep our heads down, execute our strategy and have some fun in the process.

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