Maybe not. One reason for optimism is that in the last seven years, the baby boomers have gotten seven years older. In the
mind of many Wall Street mavens, that means more consumer demand for disease-fighting and life-enhancing products being produced
by life sciences companies these days. As the boomers advance in age, the market for health-related technologies will grow
along with them. In addition, the boomers are sitting on some pretty fat wallets, and are only too willing to pay to stay
fit and healthy.
PHARMACEUTICAL RESEARCH AND DEVELOPMENT INVESTMENT
Another reason for the expanded financial pipelines is that Wall Street has noticed that the biopharmaceutical sector has,
by and large, increased its research and development (R&D) capacities.
According to the Journal of Life Sciences, the pharmaceutical and biotechnology sector is now the largest market in terms of R&D investment, leapfrogging over the
technology hardware and equipment sector last year. The big boys are amping up the R&D machines, and Pfizer is setting the
tone with total R&D investment of $7.6 billion, an increase of 2.1% over the previous year. Others are gearing up R&D investment
as well. Among the biopharmaceutical firms in the list of the top 50 R&D investors that demonstrated big spikes in R&D spending
last year were Merck (up 24.3% from the previous year), AstraZeneca (15.5%), Roche (15.5%), Johnson & Johnson (12.9%), Novartis
(10.7%), and GlaxoSmithKline (10%). Worldwide, investment in R&D rose 10% over 2005.
Traditionally, R&D has been a sore spot for Wall Street investors, which pushes and pulls money in and out of life sciences
in a reactive fashion. If biopharmaceutical companies demonstrate that they're serious about creating new vaccines and treatments
then, as the saying goes, the money will follow. And, increasingly, the benchmark that investors use to gauge the seriousness
of biopharmaceutical companies is R&D funding.
The increase in biopharmaceutical funding might be also be tied to some ulterior motives on the part of venture investors.
We're in an age of major merger and acquisition (M&A) activity in the life sciences market. VCs seem willing to pour more
money into promising biopharmaceutical firms to hopefully catch the eye of a big pharmaceutical company on the prowl for new
M&A opportunities. Much like a homeowner sprucing up the joint before putting his house on the market, venture investors are
earmarking more funds for things like mid-stage clinical trials of experimental drugs to make potential suitors sit up and
take notice.
So where is all this new money coming from and will it continue to flow? The New York Times article says it's a combination of Wall Street and academia, particularly endowment funds groaning under the weight of new
investment money and from hedge funds looking for new profit opportunities.
That's a good sign for biopharmaceutical companies looking for new investors. For the reasons mentioned above, investor's
eyes have turned to the life sciences sector. There's something in the air, and it all points to a financially flush venture
funding environment in 2008.
Let's just hope that, as far as bubbles go, history doesn't repeat itself.
Celebrity author and business/finance commentator for CNN and Fox News, Brian O'Connell has written for The Wall Street Journal and Newsweek, Doylestown, PA, 215.230.1070, brian.oco@verizon.net
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