Friday, January 23, 2009

Biotech strategies to avoid falling prey to cash rich pharma

The Big Pharma market has over the last decade increased its dependence on the biotechnology sector to help replenish its dwindling product pipelines. This along with relatively easy financing had enabled, until recently, biotech companies to partner their products at quite advanced stages of development. This in turn allowed them to wield significant power.

With the onset of the credit crunch the tables have however turned and the sector has witnessed the start of a period of licensing and M&A activity...but on Big Pharma’s terms. How can biotech companies respond?

Biotech’s position has become destabilized and as a result some companies may be forced into negotiating deals (both licensing and M&A) that would not have been dreamed of until recently.

On average non-profitable public US biotechs have 1.7 years of cash remaining. To avoid being snapped up by Big Pharma, biotechs have two options: cutting costs to reduce high cash-burn rates, or accessing quick cash from external sources.

Accessing external financing is becoming increasingly difficult especially in the face of dwindling share prices. The capital raised by US biotech firms has declined from over $2.1 billion in Q4 2007, to under $700m in Q4 2008. Also no IPOs have occurred in the US Biotech industry since Q1 2008.

While raising quick cash from traditional sources represents a problem the options are to go to plan B: reducing burn rate; or to explore new funding opportunities...and thankfully there are some.

New funding opportunities include: obtaining government support, identifying novel investor strategies, and grants and donations. These opportunities are there but will likely only be available to the strongest companies. Others will have to contend with reducing costs further until the only options left are acquisition or in the worst case scenario, winding down the company.

Source: Biotech Financing in the Credit Crisis: Strategies for a radically altered landscape

Published December 2008 - $3800 (Contact us for biotech discounts or for free pages)


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