G. Steven Burrill
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October 2008 will be remembered for a very long time by biotech CEOs after the industry dusted itself off from one of the
worst months on record as far as the capital markets are concerned. Not only did we see wild swings in the Dow but also the
almost immediate impact it made on the progress and prospects of small and emerging biotech companies.
The meltdown in the financial markets represents a sea change in the world of financing that will continue to affect the flow
of much needed capital into the sector for the foreseeable future. Biotech companies have had reasonably easy and inexpensive
sources of capital in the past 40 years, but now the world has changed for them and it is going to get much more difficult
going forward.
In the past, biotechs have recovered from several "nuclear winters" as the financial markets rebounded from various perturbations.
This time, however, the problem lies in the very sustenance of the industry—capital, which has been its umbilical cord since
the industry's inception. Now that cord has been cut and we are entering a very different world where capital will be more
expensive and difficult to obtain.
The more mature and blue-chip biotech companies will do just fine because they have plenty of cash, product revenue streams,
strong pipelines, and Big Pharma partners. The small public and private companies looking for venture capital will feel the
most pain.
The prognosis for the almost 200 publicly listed biotechnology companies that have seen their market cap drop to less than
$100 million is that they will find the next 12 months challenging because they are often trading at almost no multiple to
their cash. These companies will need to find ways to survive and stretch out the funds that they do have remaining.
In fact, 30% of the public biotech companies tracked by the monthly Burrill Biotechnology Report were facing the specter of
NASDAQ delisting notices until the NASDAQ Stock Market announced that it had suspended its minimum bid price and market-value
requirements for continued listing for three months in response to the severe financial conditions. Even this extension may
not be long enough as the consensus appears to be that the industry is facing a long downturn.
Looking to the future, I believe that the markets will return in late 2009 or early 2010. However, at that time we are likely
to see a very different industry than currently exists. Companies with limited cash are already starting to cut their work
forces and even eliminate research and drug-development projects in a desperate effort to extend their runway. Some might
have to sell themselves at less than favorable prices to at least salvage some value for their investors and shareholders.
There will be attrition through bankruptcies and mergers. The focus of attention amongst successful private and public companies
alike are those biotechs with a market cap well below their cash value but with $60 to $80 million in the bank. For private
companies, with the IPO window firmly closed for them, it represents an opportunity to go public by merging into these companies
that have fallen on hard times and have few or no options to undertake financing because of their low share price.
We are not writing biotech's obituary just yet. In fact, these stressful times will force companies to look at what they have
and how their assets can be monetized. They will also have to look further afield for financing and potential partners such
as the BRIC countries—Brazil, Russia, China, and India.
The industry has been and will be as creative in its survival as it has been in its product development. From this will emerge
and even stronger industry.
