West Coast Editor

Say "more regulation" in the biotechnology industry - or any other these days - and you're likely to hear groans from the CEO's office. But it just might be a good thing, at least in one area.

The subject came up in a speech last month when Andy Arno, co-president and chairman of capital markets for C.E. Unterberg, Towbin in New York, spoke about the changing world of the PIPE, or private investment in a public entity.

PIPEs are popular, he told BioWorld Today, "but there still seems to be a number of mutual funds, a lot of accounts, that according to their charters can't buy PIPEs. Whatever could happen to fix that would be a positive thing."

One fix would be tighter regulation of PIPEs, so that mutual fund managers would feel better about stepping in. Some already would like to, Arno noted.

"My sense is - and I don't know this for a fact - that some of the big mutual funds are pushing for [increased regulation]," he said.

In a PIPE, the company sells unregistered securities to a specific group of investors or institutional investors in a private placement and files to register the securities later, within 30 days after the offering. The deal can be done quickly, without immediate paperwork or big risk. What's more, it can be tailored to fit whatever the investors are willing to provide, in accordance with the company's needs.

Negotiated directly with investors, the PIPE stays off the radar until completed, which tends to relax the buyers, since it blocks other current shareholders from selling with a plan to re-buy at a lower price, as can happen in secondary offerings. All of which makes PIPEs as appealing to mutual funds as to any other investor, Arno said - but many funds want more protection before they take part.

"We have a transaction we're working on right now, where three accounts really like the company but they can't participate," he added, since they're blocked by their own rules.

In general, PIPEs are becoming harder to pull off, Arno said. Deals that manage to get through carry 25 percent to 100 percent warrant coverage, and the common stock PIPE has pretty much gone by the wayside, with convertible bond PIPEs becoming the standard, he said.

Biotechnology firms have been among the major users of PIPEs, Arno said, but such companies have a near-constant need for cash to feed research, so they're likely to stand out in any form of fund raising and "logically, it doesn't matter what the vehicle is."

Still, PIPEs can prove uniquely handy, he said. "The process is shorter so you get your money faster."

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