The climate for biotechnology companies in Massachusetts today is 33 percent worse than it was this time last year—rating a ‘4’ on a scale of 10, in contrast to the ‘6’ last fall.
This was the definitive, near-unanimous view—four out of five—from panelists at a Massachusetts Biotechnology Council finance committee event I moderated recently on the subject of “The Evolution of the Biotech Business Model.” The fifth member hardly saw things differently—giving 2008 a ‘5’ and 2007 a ‘7.’
The poor economic score was the bad news. The good news is that there is a lot of innovation in biotechnology today—and, judging from the panelists anyway, three of whom are investors, there is still plenty of opportunity for companies and entrepreneurs who are flexible and able to pursue new financing and operating models, as well as new types of collaboration. We’ve explored some of the financing models in our How to Build a Biotech Company conference last month, which Ryan wrote up here. But at the MBC panel, we dived more into such questions as, “Will Pharma companies continue to move into biotech’s turf? What do firms have to do differently in various stages of operations in the current climate? What about outsourcing—should companies be more virtual, or should they build in-house capabilities that could improve their valuations? Can another Genyzme or Biogen Idec be built in the current climate, or, with the IPO market dead, is selling to Big Pharma the only exit option?”
A warning—not all these questions were answered to any degree of certainty, of course. And I won’t even try to capture all that was said, just some takeaways I found most interesting. But first, let me introduce the panelists: Mark Kessel, co-founder and managing director of New York-based private equity firm Symphony Capital; Eric Elenko, a principal with PureTech Ventures; Gautam Jaggi, managing editor of Ernst & Young’s Beyond Borders global biotechnology report; Kevin J. Bitterman, a principal with Polaris Venture Partners; and John Edwards (not that John Edwards, and he’s tired of the jokes), president of Adnexus Therapeutics.
Edwards was the lone company executive on the panel–and he had a great story. After all, Waltham, MA-based Adnexus filed for an $86 million IPO in August 2007, then pulled it back and sold the company a month later to Bristol-Myers Squibb (NYSE:[[ticker:BMY]]) for $415 million in cash, and potentially another $75 million in milestone payments. “In the current environment we certainly wouldn’t have raised $415 million for an IPO,” he told the audience.
Here’s some of the other highlights I jotted down, which include some details from follow-ups I made to panelists:
—Find non-traditional forms of financing. Polaris’s Bitterman noted that his company and other VCs are asking biotech CEOs to focus on novel methods of raising capital as one way to get through the downturn with their equity intact. This would include grants from the Bill & Melinda Gates Foundation and other organizations, corporate partnerships, and federal Small Business Innovation Research (SBIR) funding, for instance. Noted Kessel, “A strong case can be made that it will enable a company to preserve greater value for its shareholders as compared to an immediately permanent dilutive equity deal or a deal with Big Pharma [at] too early a stage, which is very dilutive.”
—Innovate in other aspects of business operations as well. Edwards was probably the most vocal on this front, pointing out that new models are needed across all stages of biotech operations—manufacturing, trial design, R&D, and so on.
—Outsourcing, outsource, outsource (well, the panel didn’t put it quite so emphatically, but that was the impression I got). Outsourcing doesn’t necessarily mean moving jobs offshore, but most of the talk was about foreign contractors. That drew heat from one audience member, who asked why
