Stockwatch: Bad debts and outcomes
This article was originally published in Scrip
Despite what a young biotechnology company's bankers will tell them, raising debt ahead of the approval and commercialisation of the company's first product, is rarely a good idea. The rationale, which probably sounds good at the time, goes something like this. Once the revenues start flowing from the soon to be approved product, they will easily cover the interest on the debt and by the time the principal, or the convertible become due, the company will be cash flow positive and would be able to pay-off, refinance or convert the liability into shares.
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