Seeing Beyond the IPO Window Dressing
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the banks, and then to financial markets. This time around it has been slower than usual because the 2008 collapse of mortgage-backed securities dampened enthusiasm for speculation across the board. When enough money has flowed in to fill the coffers of mainstream business, it eventually spills over to biotech.
No one should fall into the “this-time-is-different” trap. If anything is different, it is not biotech, but the macroeconomic environment, and that is a temporary phenomenon. With cautious investors sitting on cash, the Fed has been able to create extraordinary amounts of money without triggering either inflation from excess spending or financial bubbles from speculation. But the pressure on markets is building. Even real estate is showing signs of overheating in selected sectors.
If the strategic landscape is going to change in a meaningful way for life sciences, the industry itself must change. The occasional public-market orgy, while fun, won’t provide the needed support. The cyclical nature of public money, uncorrelated with product development, adds a level of risk that makes an already challenging financing equation unsustainable. Biotechs need money when they are ready to start the next trial, not when the Fed decides to print it.
The fundamentals of investing in early stage bio-pharma remain the same. Scientists still struggle to reliably translate findings at the molecular level into new therapeutics. As long as the industry pursues the same old business models in this situation, the results will be the same in the long run.
This happens to be one of the rare times when the market is so flush with cash that it can afford to … Next Page »