Between a Rock and a Hard Place—JP Morgan Afterthoughts
Yes, the mood has undoubtedly improved in comparison to last year’s gathering of the healthcare investment community around the “old clock” at Union Square in San Francisco. But given the overall depression of last year this was perhaps not all that difficult to achieve. I have mulled over all the conversations I had during the usual four day frenzy, trying to sort out reality from wishful thinking, and here are a few admittedly subjective conclusions:
—The industry is still facing fundamental problems and has not convincingly formulated breakthrough solutions when it comes to the exorbitant cost of drug development, high attrition in the clinic, predictable FDA decision-making, reimbursement, and disruptive innovation. Everybody has been forced to implement draconian cost-cutting measures and it is amazing to see how much can still be done with so much less resources and money. But, we are really stretching resources and dollars towards the breaking point.
—Skepticism around IPOs in the healthcare sector without solid near-term revenue streams remains very high. Very few VC investors expect a significant increase of IPOs in 2011, hence, this favorite exit route of the biotech boom years remains elusive, putting continued emphasis on M&A.
—The emerging mantra of last year’s conversation about pharma and biotech (as well as their investors) being all in one boat has taken root. The dialogue centers around collaboration and partnership, risk-sharing, and early-stage engagement. This trend provides important feedback to biotech and biopharma startups which hopefully translates into improved relevance of the work done and financed in the early stage.
—Creativity around biotech-pharma deals has definitely increased and no structure is off the table. Buzzwords around Union Square were “option deals with negotiated upside” and “structured acquisitions.” The trend clearly points towards earlier collaboration and cost-sharing, albeit with fairly modest technology access fees or upfront payments. As a consequence, investors see their exit options dragged out more and more; simple all-cash acquisitions remain rare and might only be achieved in competitive situations created by high strategic value of assets.
—The discussion continues around the strategies of bringing innovation into healthcare. The recent mergers in pharma—Merck and Schering-Plough, Pfizer and Wyeth—have resulted in … Next Page »