BIOblog for GEN BIO Super Session
Weathering the Perfect Storm of Financial Distress
Rod Raynovich 5/20/09
At the end of this session someone in the audience asked, ”You described the Perfect Storm but didn’t tell us how to weather it?” Vaughn Kailian answered, ”Wrap yourself in cash.” But 135 public companies have less than one year of cash.
Stephen Sands a managing Director of Lazard moderated the session and in his opening remarks forecasted no improvement in capital markets for at least six months. He added that signs of an upward turn might be overall market stability and a small cap biotech rally. Key factors for success are: management team, stage of development and pre-market valuation. And don’t expect a flurry of M&A as big pharma is not that interested in acquiring small biotechs as they are too busy merging with other big companies. The number of M&A deals have been pretty steady since 2005, about 30 to 34 per year. Alliance activity will continue to pick up now at over 100 per year.
When the market does pick up companies need to have their story ready and take the cash when it is available. (We saw this recently with the big bank financings).
Some of the other comments from the panel provided good insights:
Scott Gottleib M.D. a resident fellow at the American Enterprise Institute felt the FDA situation would improve because of better leadership and additional funding. But that the greatest risk ahead was political uncertainty involving Waxman and reimbursement issues with CMS more in the pricing picture. He as well as others felt the biosimilar issue may not be such a big risk as the FDA will continue to be staunch on safety issues and “biosimilar” labeling may not equate to existing branded biologics and biosimilars will not speed through the FDA.
Vaugh Kailian, Managing Director of MPM Capital commented on biosimilars saying that the five years data protection proposed by Waxman is unrealistic and would not fly.
With regard to the current financial situation he said that there is not enough money out there to do all the planned Phase III trials.
Broderick Johnson a partner in the law firm of Brian Cave said that this economic cycle is unprecedented and it will take a while to cure. He was optimistic about the political positioning of BIO versus big pharma maybe due to the scientific underpinnings of biotechnology and with patent reform. He added that the Obama administration is pushing back lobbyists and and that biotechnology needed to distance itself from big pharma.
David Pyott CEO of Allergan said that the valuation of healthcare stocks is depressed due to reimbursement issues and innovation is the way out.
In conclusion the big hope for the industry is that innovation will trump politics and the only pathway through the downturn is to create cost effective products that treat major diseases.
The days of easy money and lobbying your way to success are over.