“Not a rosy picture” for biotech financing
James Watson, the managing director and head of merchant banking for Burrill & Company, said he missed his wife’s birthday again this year to come to Mannheim to lead what has become a BIO-Europe tradition and one of the most popular features of the event’s conference program —A Day in the Life of Experienced Dealmakers.
Yet this sixth edition of the panel discussion proved to be the darkest Watson has ever presented, reflecting the continuing bad news coming from financial markets, and probably not due to a sour mood caused by missing a birthday celebration.
True to form, Watson started off with a review of recent activity in dealmaking, but participants who were used to hearing an entertaining interpretation of the year’s events joined one panelist in nervous laughter when he said he wished there was something stronger than water available to drink on the podium.
“It is not a rosy picture,” said Watson as he systematically worked through the current situation for financing for biotechnology companies.
The window to initial public offerings (IPOs) is closed, he said, and in private equity transactions have fallen in number and value along with the valuation of companies.
The pace of partnering is slowing, from an average of 300 deals for the past three years to just half of that for this year and that number is not going to climb anytime soon, he said. Regarding a merger or acquisition as an alternative strategy he cautioned small biotech companies to recognize that such an exit is relatively unlikely with such a deal being the rare exception rather than the norm.
At his own venture fund, he said, “We must focus on our existing portfolio right now as the participating limited partners and insurance company investors have ratios for performance that we need to maintain.”
Before turning to the panel for discussion, he added, “It will be hard to raise any new money.”
Admitting that he had a doom-and-gloom view of today’s financing markets, Simon Turton the Managing Director for Warburg Pincus said “we have not yet seen the worst of this.” Rather than seeking financing, his advice to biotech companies is to look at ways to use the cash that they currently have on hand to get to 2011 when conditions may be more favorable.
“Pay close attention to cash burn management, cutting costs and cutting deeply,” he urged the audience.
Shaun Grady, Vice President for Strategic Planning and Business Development at AstraZeneca, said, “When we sit down to meet with biotech companies, the first half hour of the discussion is no longer devoted to product but to cash management issues.”
“We are there to do a deal,” he said, “but with far greater scrutiny of the asset than before.”
There were, however, some hopeful notes as the 90-minute panel discussion turned to the convergence of big pharma’s nearly desperate need to find new sources of revenues and biotech’s ability to produce the winners.
Andrew Gengos, VP, Strategy and Corporate Development, Amgen said “there are massive revenues of big pharma companies that will be coming off patent in the next five years, so the fundamentals of this market remain bullish. High quality assets are getting financed and will continue to be financed.”
Simon Moroney, the CEO of MorphoSys, agreed saying “It is shocking how ineffective pharma R&D has been, and with the five-year horizon on patent expiration approaching the spend can not go on. Yet big pharma has not embraced initiatives that are bold enough to make any change,” he said. Moroney added that “biotech will struggle in the years to come, yet they are the engine that can deliver the solutions for pharma’s problems.”
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