Goldman Sachs Does Biotech-Style Financing

The deal that Warren Buffet struck with my old employer, Goldman, Sachs & Co made a lot of old biotech hands like me break out into a knowing grin.  Buffet just did a $5BB deal with the cream of the crop of Wall Street firms on terms that would normally only be found in a PIPE (private investment in public equity) in a crappy small-cap biotechnology firm.

For his $5BB, Buffet got a perpetual preferred stock with a 10% yield and 100% 5-year warrant coverage with an exercise price that was already in the money by over $10/share.  On a Black-Scholes valuation basis, that warrant alone is worth between $1.5BB and $2BB.  It's an incredibly rich deal.  In fact, I know a lot of small biotech companies with less than two years of cash burn who would have balked at such terms in recent months.  

Of course, the brilliance of Buffet's move is that he knows his investment is going to be protected by the U.S. Treasury with Paulson at the tiller.

When Goldman Sachs does financings on worse terms than a sub-$250MM market cap, money-losing, cash-burning, high-risk biotech would accept, you know that things are really bad down there.

I'm still shaking my head in disbelief.