Sluggish economy hits biotech

Written byBob Grant

| 2 min read

Not one single venture-backed US company completed an linkurl:initial public offering;https://www.the-scientist.com/article/display/18293/ (IPO) in the second quarter of 2008, according to a linkurl:report;https://www.nvca.org/pdf/Q2_08_Exits_Release.pdf released yesterday (July 1) by the National Venture Capital Association, and the news means that small, privately-funded biotech companies may find it difficult to stay afloat in these uncertain economic times. "Companies will either disappear or tread water for a little bit," said Peter Winter, editorial director at Burrill and Company, which linkurl:tracks;https://www.businesswire.com/portal/site/google/?ndmViewId=news_view&newsId=20080701005939&newsLang=en biotech industry trends. Approximately eight biotechs have filed for IPOs this year, with only one successfully going public, according to Winter. Last year, an estimated 35 biotech companies went public, raising a combined $5.5 billion in IPO financing, said John Craighead, director of investor relations and business development at the Biotechnology Industry Organization. "The markets are simply not allowing [biotech] companies to go public," said linkurl:Terry Winters,;https://www.the-scientist.com/article/display/53132/ a partner at Phoenix-based venture capital firm Valley Ventures. "It causes a problem because biotech is a voracious consumer of capital." Winters said that the dearth of private biotech startups going public is less a side effect of an overall sagging economy and more due to the lack of specific success stories coming from the biotechnology and pharmaceutical industry. "The health and biotech industry is more affected by its winners and its perceived winners," Winters, who is also the chairman and CEO of liver therapy device company, Vital Therapies. "We haven't had any real high-profile winners lately." If news of linkurl:failed drug trials;https://www.the-scientist.com/news/display/52861/ and linkurl:bankrupted biotech companies;https://www.ardana.co.uk/30062008.html continues to dominate the headlines, said Winters, an upturn in the biotechnology market will be hard to come by. "If all we're seeing are failed trials, then I'm afraid the market does not improve." In addition to these troubles, small biotech companies face the linkurl:Sarbanes-Oxley Act,;https://www.the-scientist.com/article/display/23561/ which contains strict accounting and disclosure regulations for publicly traded companies and represent increased costs. "It is very very costly for a small company to comply," said Craighead. Winters said that despite the worst IPO drought in 30 years, times like these make investing long-term in biotech attractive. "They yield good investment opportunities at very favorable prices," he said. Winters said that rather than investing in public companies where a short-term return is expected, he and his partners at Valley Ventures are concentrating more on investing in private companies whose "liquidity events" - such as linkurl:mergers,;https://www.the-scientist.com/blog/display/54762/ IPOs, or becoming cash positive - are five to seven years in the future. As of right now, said Craighead, biotechs are having trouble going public, but private investment remains strong. "While the financing environment might be quite poor in the public market, it's holding up quite well in the private market." With the chances of taking biotech companies public slim and corporations being forced to cut costs, Winters said that investors and administrators must find new ways of funding biotech ventures. "It's time for creative financing ideas."

Meet the Author

Bob Grant

From 2017 to 2022, Bob Grant was Editor in Chief of The Scientist, where he started in 2007 as a Staff Writer. Before joining the team, he worked as a reporter at Audubon and earned a master’s degree in science journalism from New York University. In his previous life, he pursued a career in science, getting a bachelor’s degree in wildlife biology from Montana State University and a master’s degree in marine biology from the College of Charleston in South Carolina. Bob edited Reading Frames and other sections of the magazine.

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