The Heydays are Over – Evolving the Next Model
A recent MassBio report found the number of biotechs in the state increased to about 400 over the past 7 years and the number of employees increased from 30,000 to 40,000. But the report also warned that 1/2 of the state’s publicly traded biotechs are in danger of running out of cash before the end of the year.
The effects of this current economic climate has put increased pressure on pharmaceutical companies to contain their costs; but this need has not just “arisen” from the recession as patent expirations, lack of late stage products, slimmer development pipelines, pricing pressures and tougher regulatory environments affect all. Current acquisition activities tend to be “storied” mergers to economic efficiencies, market focus and cost containment.
Venture capital (VC) investment was down 44% in the first half of 2009. The past boom attracted huge amounts of money but the present bust has changed the fundamentals of venture investment. Today, few can invest in new companies as there isn’t enough in the coffers for portfolio companies with IPOs non-existent and acquisition exits miniscule. VCs are having their own financing problems with their own inability to raise new funds. Hedge funds which frequently played in the crossover investment space as a source of funding have also retreated to the basics as their ranks have been depopulated and returns have been miniscule as related to this sector.
Bottom Line: Despite “some” improvement with a “few” IPOs, mergers and acquisitions; the heydays are over!
- Not all developmental platform entities should be companies,
- All models must involve closer collaboration with Pharma,
- Clear cut regulatory paths are the easier route to viability,
- Adoption of cost-reduction and streamlined development strategies for sustainable structures – the more virtual the better,
- Consider pooling resources, operating teams and staff to provide economics of “non-essential” activities and form integrated clusters of shared activities to off-set cash burn,
- Access governmental funding or grants that “could” be available for short-term funding for proof of concept initiatives to the near-term as employment is a political (voting) issue with any governor or legislator,
- Hospitals tend to receive a large chunk of NIH research funding and might be a future source of partnerships, joint ventures and cost containment,
- Pre-contract with Pharma to develop compounds through a certain stage with pre-arranged terms,
- Consider the “old” Arthur D Little (ADL) model – more than just an incubator, “we will build it, just pay us”. They made a silk purse from a sow’s ear!
