What’s a Biotech Banker To Do in a Downturn? How About M&A

3/16/09Follow @xconomy

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about what should happen in the wake of the Genentech takeover. Some are lamenting the loss of independence for the biotech industry’s most valuable company, which could hurt America’s claim to leadership in innovation within this sector. Others predict talented Genentech employees will leave to start new companies, fueled partly by lucrative stock-related paydays.

Milstein doesn’t have the most bullish take I’ve heard on the implications of this deal. He predicts that some of the $46 billion going to Genentech shareholders will go “off the table” and get parked in what are considered to be relatively safe investments, like U.S. Treasuries. Another segment will get pumped into the broader stock market, because it was held by funds that weren’t biotech specialists, but just considered Genentech (NYSE: DNA) part of a balanced portfolio.

But a third element of Genentech shareholders will take their winnings and look to invest them in the next generation of biotech up-and-comers, and that should further stimulate the industry, he says. “It’s a psychological lift for the sector,” he says. But it’s also more than that, because Genentech was able to hold out for months, forcing Roche to raise its bid to seal the deal. “It shows the value of the biotech sector to Big Pharma,” Milstein says.

So who exactly are some of the emerging life sciences companies that Milstein has his eye on, which make it worth a trip to Seattle in March? He mentioned Seattle-based Allozyne, which is developing a longer-lasting, less frequently injected drug for multiple sclerosis. Its technology, licensed from Caltech, also allows the company to engineer new properties into all sorts of protein drugs to make them last longer, or make them more potent. “It’s a classic platform with real promise for drug development,” Milstein says.

Even though Seattle doesn’t have the same number of companies or amount of venture capital that flows in Boston and San Francisco, it is still one of the “regular stops” on Milstein’s travel itinerary, along with San Diego. “Seattle is right up there,” he says. “It’s a fantastic place for new science, with a lot of things coming out of the UW.”

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