LONDON - Karolinska Development AB has wiped SEK368 million (US$43.35 million) from its portfolio after deciding to take a more conservative approach to valuing its stable of biotech spin-offs.

The write-down is the next step by recently installed CEO Jim Van heusen, in putting the quoted technology commercialization company on a more realistic footing, with a business strategy that acknowledges the long timelines and huge capital inputs required for clinical development.

Van heusen said that following the appointment of new auditors and a review, it has been decided to value companies on the basis of the most recent round of investment, rather than using discounted cash flow, as at present. That is “a more prudent and representative approach,” Van heusen said during a conference call held to discuss the change.

Discounted cash flow uses a large number of assumptions that are not appropriate for valuing the seed, start-up and early stage companies that make up the majority of the portfolio, Van heusen explained. In the future, discounted cash flow will only be used for companies that have products in the later stages of clinical development.

At the same time, Karolinska Development said it is divesting its entire shareholding in Pharmanest AB, which to date it has trumpeted as the leading prospect in the portfolio. The company, whose lead product for local pain relief in gynecology is in phase II development, has reached the point where its cash requirements are too much for Karolinska Development to sustain.

Pharmanest has been acquired by a consortium of investors, who simultaneously are putting in SEK38 million for further clinical development.

Other terms were not disclosed. Van heusen said the funding provided by the consortium will take Pharmanest to the next value inflection point of submitting the lead program for regulatory approval in Europe.

“Following the deal, Karolinska Development will provide no further financing to the company but retains an economic interest in Pharmanest through an earnout agreement, which has the potential to capture significant future value,” said Van heusen.

After the re-valuation and the divestment of Pharmanest, the fair value of the portfolio of SEK1.399 billion reported at the end of the first quarter has fallen to SEK679 million. However, Van heusen noted, “the portfolio still has the same potential.” The majority of assets are based on intellectual property arising from research at the Karolinska Institute in Stockholm, one of Europe’s leading medical schools.

Van heusen joined Karolinska Development in March, picking up the reins from interim CEO Trje Kalland, who stepped in when the previous incumbent Bruno Lucidi left at the turn of the year, after only three months in the job. Earlier in 2014, Karolinska Development had said goodbye to another CEO and to its chief financial officer.

The revolving doors were accompanied by a slump in the shares over the course of the year, with the price falling to SEK13.25 at the end of December, from SEK35 at the start of 2014.

Karolinska Development joined the Nasdaq market in Stockholm in April 2011 (STO:KDEV). The shares hit an all-time low of SEK9.65 on Thursday, following the announcement of the devaluation of the portfolio.

When Van heusen joined in March, Karolinska Development had an unsustainable 33 small start-ups in its portfolio. He immediately started weeding, discontinuing investment in Pergamum AB, Umecrine Mood AB and Neodynamics AB, fully writing off those companies, at a total value of SEK225.2 million.

That supported a new business strategy, in which rather than being sole provider for a large number of companies, Karolinska Development is operating more like a traditional venture capital firm investing with syndicates. It has had some initial success in making that transition, with one company, Forendo Pharma, closing a financing round for the clinical development of a product for treating endometriosis.

Van heusen said he is still discussing further possible divestments, but declined to give any details. “For all portfolio companies, we always continue to explore all potential options,” he said.

In February, Karolinska Development closed a fundraising of SEK450 million from Thailand’s Charoen Pokphand Group, and now has cash of SEK383 million. Van heusen said that is sufficient to unlock the value in the remaining portfolio.

Following the divestment of Pharmanest, the leading prospects are Aprea AB, which reported preliminary results from a phase I/II trial in ovarian cancer in April, and Dilaforette AB, which is due to start a phase II trial in managing exacerbations of sickle cell disease.