This Is Recovery: Less Money, Less Risk Appetite, Fewer Jobs
Here in Oregon, it looks like an early Spring, with early February's green shoots already full-blown daffodils and the cherry blossoms already doing their thing. But for biotech, the economic green shoots that started to push up last year may be withering under an unexpected blanket of snow. (Hey, you East Coasters will understand the metaphor.)
An IPO market that was starting to heat up may now be winding down, as a number of companies currently in the queue start to have second thoughts in the wake of Ironwood Pharmaceuticals' not-so-stunning success (see Money Talk, below). That's a problem when it comes to financial exits, but there's an entrance problem, too. Banks have been doing rather well lately, but they are continuing to use these relatively good times to heal their balance sheets and are not doing much lending. Venture capitalists continue their appetite for big, mature companies with near-term market opportunities, not big ideas that need to be developed. Overall U.S. venture investments dropped 31% from 2008 to 2009, according to Dow Jones VentureSource.
There were some bright spots for our industry. For one thing, healthcare attracted more venture capital than IT in 2009--the first time that's ever happened. And biopharma collected $4.2 billion in 2009, "only" 11% less than it did in 2008--a far less precipitous drop than most other sectors saw. But deals tended to go to larger, more mature companies, continuing a trend we've seen for quite a while now. There's little evidence of relief for early- or seed stage companies, and it may just get worse this year as the more mature members of VC's portfolios come asking for more cash and elbow out their smaller rivals.
How will new companies be created? It was interesting to see Apeiron strike a deal with GlaxoSmithKline that brought it $17.5 million in upfront cash (see Golden Handshakes, below), considering that this company has never raised a dime of venture capital. It has gone from grants and angel investments straight to partnership money, thank you very much. Could that be the shape of the future? Some data put forward on the In Vivo Blog suggests that pharma companies are indeed pumping more money into upfront cash and early-stage deals, stepping in for absent venture capitalists to some extent. But it's hard to see that truly filling the void left by the risk-averse venture crowd.
Lest I sound like a downer, however, let me acknowledge that, while things still look very sticky out there, most indicators are still heading in the right direction. Confidence is clearly returning, and a volatile sector like biotech depends on that more than most.
- Karl Thiel
Read the BioPharm Executive online newsletter February 2010.
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