BIO Boss Plays Defense as Member Companies Struggle to Survive, Political Heat Cranks Up

2/26/09Follow @xconomy

Lobbying for the biotech industry in Washington DC doesn’t sound like fun now. The industry is being left for dead by Wall Street, the IPO market has closed down, and about half of the 370 public companies are reporting they have run down to less than a year’s worth of cash on hand. Many of the 900 member companies in the Biotechnology Industry Organization are laying off workers, being forced into shotgun mergers, and shelving once-promising product candidates.

Inside the Beltway, a new President and Congress have a host of policies in mind that would upset the status quo for the pharmaceutical and biotech industry. There’s universal health care and cost control, for starters, and then the perennial threat of laws to make it easier to develop cheap, generic-like biotech drugs seems more real than ever. Patent law changes might discourage investors from making big bets on new drugs. This week, President Obama said he wants to spend a billion dollars for studies that compare the effectiveness of brand-name drugs against cheaper alternatives. (Doctors might discover that an over-the-counter heartburn drug is just as good as a branded pharmaceutical that Americans spend $6 billion a year on! Horrors!)

I live in Seattle, 3,000 miles away from where all this DC political hardball occurs, but I joined in on a press conference this morning with Jim Greenwood, the president of the Biotechnology Industry Organization, to get up to speed on how these issues will affect members in our Xconomy network cities of Boston, Seattle, and San Diego. Greenwood, a former Republican congressman from Pennsylvania, tried to maintain an upbeat tone, but the news wasn’t encouraging.

“Our companies are pretty resourceful,” Greenwood said, when I asked how many companies will die. “They’re pretty good at crunching down their burn rates to get it as lean as possible until the sky clears and they can go back to investors. These are committed people. They’re not quitters.”

The numbers from BIO itself paint a pretty dark picture, including:

—About one-third of all publicly-traded biotech companies (120 out of 370) now have less than six months of cash on hand. The number of companies living with this dangerously thin amount of cash has climbed 90 percent in the past year, BIO says. Almost half of the companies have less than a year of cash on hand at last count.

—Companies can’t lean on actual product revenues to float their ships, because only about one in 10 public biotech companies have positive income, BIO says.

—That’s why Wall Street’s willingness to swing for the fence, in the high-risk, high-return world of biotech is so important. And in a world when Fannie Mae goes bust, it’s understandable why investors are gun-shy, and not likely to pump cash into biotech. In the old days of 2007, there were 41 biotech companies that did initial public offerings, and together they raised $1.9 billion. Last year, in the meltdown of Bear Stearns, Lehman Brothers et al., only one biotech company went public, and raised a paltry $5.8 million, according to BioWorld.

One bright spot Greenwood highlighted in his opening remarks was from President Obama’s national address this week, in which he called for doubling the amount of cancer research funding over the course of several years with a goal of curing cancer in our lifetime. This might mean a $6 billion increase in the budget of the National Cancer Institute, a branch of the National Institutes of Health that does internal work and sponsors academic researchers around the country.

BIO has long pushed for increases in basic research funding, because it’s often the genesis for new company formation, but Greenwood is clearly worried that other policies will make it tougher for companies to get the investment they need to turn promising research into effective real-world drugs. In one example, BIO is pushing for a 14-year period of market exclusivity for makers of brand name biotech drugs, before they face competition from generic copies that make cheaper, knock-off versions of biologic drugs. He suggested that if the policies aren’t passed to his industry’s liking, then lawmakers will bottle up the pipeline of 254 different cancer drugs in the works, and will fall short of their goal of curing cancer.

“Incentives for innovation need to be preserved if we’re going to play a role in curing cancer,” Greenwood said.

One thing BIO tried to do for its members was to stick a provision in the new $787 billion federal stimulus bill that would have given a tax break to money-losing biotech companies. That failed, but BIO is apparently trying a new tack, to get something like a refundable grant program from the federal government, Greenwood says. With a whole lot of industries sticking their hands out to the federal government, including those that employ a lot more voters, it sounds like Greenwood has his work cut out.

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  • Donald Dickens

    The U.S.biotechnology industry is fully as critical to physical and economic health of the U.S.and and the World as is its banking industry…and is as fully (if not more) entitled to governmental financial aid and, if need be, “bailout” measures. Such help for our various biotechnology companies within the industry should be prioritzed in direct relation to their past, current and projected future contributiions to the health and wellbeing of the U.S.primarily and the entire world secondarily.Any truly essential cutbacks in private and government funding aid to these company should be based
    only this contributory criterion.
    Respectfully,
    Donald J. Dickens
    375 Moreton Bay Lane #3
    Goleta, CA. 93117
    dondickens1@cox.net