Cautious optimism for US biotech financing
One year ago a sense of gloom settled over the BIO-Europe conference, and was reflected in the opening presentation from John Craighead showing the rapid collapse of valuations for public markets.
The picture presented this year by the Managing Director for Investor Relations and Business Development at Biotechnology Industry Organization (BIO) was almost cheerful by comparison, and once again served as an indicator for the mood among the 2,500 participants at BIO-Europe 2009—cautious, but encouraging.
Craighead reported that the valuations of US companies were up 87 percent over last year when biotech watched in horror as their market capitalization plunged 70 percent.
In publicly traded markets, biotechs have bounced back from the red with an 80 percent decrease in the number of companies valued less than cash.
He also reported that funding raised so far this year from public and private equity markets combined is topping USD 17 billion, well up from the USD 12 billion raised in 2008 but still far from the USD 26 billion biotechs raised in 2007 before the bottom fell out of financing markets.
There were 20 percent fewer active public US biotech companies in 2009 with a total of 85 companies no longer listed. While almost half are accounted for by acquisitions, the other half are missing in action either bankrupted, liquidated or “inactive”, meaning they no longer report results to market authorities.
Following up on his alarming report in 2008 that one third of companies reported only enough cash to operate for one year, Craighead said the cash runways have stabilized but that cash continues to be tight.
“The survivors from the shake-out appear to be stronger companies”, he said. “They have learned to operate with less cash, decreasing cash burn by an average of 26 percent. Their valuations are higher, and some have managed to raise needed funding. Yet the consequences are projects that have been either scaled back or shelved altogether. This raises questions on the strength of their pipelines,” he said.
Looking forward to 2010, Craighead said mergers and acquisitions will continue to be the preferred exit strategy, yet these deals will be tougher for biotechs with more contingent/option-based transactions that aim to share risk and retain key employees.
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