Buy-Side Experts See Major Changes Afoot for Biotech Amid Financial Crisis

10/30/08

Unless there are more than seven figures in your personal net worth or you happen to manage a pension fund or the like, there are few chances to glean information from hedge fund managers and other buy-side experts who play the high-risk game of biotech investing.

Yet last week one of those rare opportunities presented itself to those of us who attended the Boston Biotech R&D Conference at Harvard Medical School, where local and national members of the buy-side set weighed in on the impact of the global financial crisis on the life sciences industry. To hear these insiders talk shop, the grim realities of the crisis will be felt in different ways at all levels of the industry—and we’ve already seen evidence of these market dynamics playing out in Boston, San Diego, and Seattle.

Here’s a taste of three potential or ongoing changes they discussed:

Economic Darwinism
Jay Markowitz, a health care analyst for Baltimore-based investment firm T. Rowe Price (NASDAQ:TROW), isn’t the first person to use the term “economic Darwinism.” And its clear that the new constraints on the availability of capital mean that some of the weaker life sciences companies won’t survive in the public markets. “I don’t think capital has been all indiscriminate until now,” Markowitz said, but the bar has been set higher than previous years for companies to get public funding.

Indeed, the bar is so high this year that hardly any companies are clearing it. In New England, for instance, with the exception of deals such as the public carve-outs of CPEX Pharmaceuticals, of Exeter, NH, (NASDAQ:CPEX) and Worcester, MA-based RXi Pharmaceuticals (NASDAQ:RXII), there hasn’t been a single traditional IPO among biotechs in 2008. And in an effort to avoid extinction while they’re waiting for the IPO window to reopen, some companies are taking on debt. Seattle-based biotech firm Omeros, for example, has agreed to borrow up to $20 million to fund clinical trials after filing earlier this year for an yet-to-be-completed initial offering.

Greater Clout for Pharma

As if their influence wasn’t already colossal, big pharmaceutical companies look to gain even more clout in partnership and acquisition talks with smaller firms in this financial climate.

“I just think that the pendulum has shifted over to Big Pharma because … Next Page »

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