Biotech Bailout ?

The Federal Reserve's usual approach to stimulating the economy by lowering the fed fund rates has clearly been ineffective. No surprise. They decided months ago it would be necessary to move to what is termed quantitative easing – expanding the money supply literally by printing money- and have reportedly printed upwards of 1 trillion dollars. So with every industry lining up for it's share what can biotech expect? BIO has been lobbying heavily and reports 1/3 of biotechs will run out of money by mid 2009. But does this fragmented and highly competitive industry have the political clout to command a piece of the pie? Will there be support for a bailout to avoid the loss of multiple drug programs, billions of dollars of potential drug profits and the potential benefit to millions of patients with unmet or under met medical needs? On the 'No' side- no union pull or traditional democratic constituency to support, a secretive industry providing uncertain results that are years away from commercial viability, and one that is concentrated in just a couple of states. On the 'Yes' side - companies are heavily concentrated in CA and Nancy Pelosi is Speaker of the House, there is the allure of 'high tech' jobs providing clean, sophisticated growth opportunities, and with states experiencing loss in traditional manufacturing biotech is attractive as a platform on which to build other knowledge based industries.

How to construct a deal? Besides CA , NJ, MA and PA, I'd suggest getting the representatives and senators of some other large states with fledgling biotech industries committed - specifically FL, TX, NC , NY and MI. Get existing biotech support organizations, technology incubators, venture capitalists and university tech transfer involved and lobbying. And don't forget pulling in Canada with its own significant biotech industry in Ontario and Quebec. Canada contributed their own multi-billion dollar bailout for the auto industry and should be a partner in a biotech bailout as well. Biotech needs to become much more vocal about what it can do for the economy and about building the future for America. The funds have to be quickly and directly available- no long partnership and courtships, no grant applications that would normally take months to process. Perhaps supplying large amounts of cash through existing biotech focused banks to lend at zero of very low rates and due back only following successful outcomes, perhaps direct grants and support for existing R&D, perhaps taking stakes in biotechs that are currently beginning to struggle, perhaps direct support to tech transfer and incubator programs. The point is to make funding freely and readily available to existing companies as well as to new ones. This is an opportunity for biotech to move to the front burner of the bailout along with green technology and energy- let's turn up the heat !

Steven Levy MD
President / Head Healthcare & Life Sciences

The Acoma Group LLC

Business Development, Executive Coaching and Executive Search

www.acomagroup.com

VC going to seed?

Several of the VCs and Private Equity groups I maintain contact with are in desperate exit mode. "Everything is for sale" I was told with the emphasis on SELL. IPOs are almost non-existent; big pharma is overpaying for compounds and companies because they have no pipeline.
Article in The Scientist titled "Biotech Faces Investment Downturn" was of interest- although investment was up in the 3rd Qtr compared to same in '07, they reported that was going to decrease significantly in the 4th and much would be placed in existing companies to keep them afloat until exits could be generated.
http://www.the-scientist.com/daily/2008/10

Maybe this will be the case- but what about the pipeline? Tech transfer and development is not stopping- the grant money was given out months ago and it ain't going back. The clock is ticking on any IP and patents- delayed investment is money lost. The time needed to move forward with clinical studies is relatively fixed or actually lengthening in hot areas such as oncology and CNS. In the past VC and PE kept stepping up the size of their investments as money poured in. VC strove to be PE and PE wanted bigger and more secure companies for investment. Why? Was it because without additional due-diligence capacity the number of deals was not increasing, just the size ? Or was the money just more risk adverse? Or was the increasing volume of preclinical development producing little of quality? ie more money chasing the same number of good candidates and therefore needing higher quality because of the increasing amounts they wish to invest?
BUT- Could we now see a return to seed and early stage funding? Will the 'Valley of Death' become more verdant ? As the existing biotechs with limited pipelines become less valuable with each passing month and the number of smaller deals available picks up, perhaps we are on the cusp of an explosion of start-ups and some real innovation.