The going has been tough for small companies of late. Developers who rely on regular infusions of cash from investors have been hit hard by the financial crisis as investors have moved away from funding high-risk, early-stage programs. That's not to say that funding isn't available for good science--it is, but at a much higher cost than in years past.
"Remember that cash is king and companies must do all they can to access capital and conserve cash," says G. Steven Burrill, CEO of Burrill & Company, in The Burrill Report. He outlines several steps biotech companies can take to find cash, pick the best partner and stay afloat in the economic crisis.
- Think licensing, not just M&A: Mergers and acquisitions have become more common as big companies can purchase an entire small biotech for the same price as they would have bought a single program a few years ago. But when a biotech licenses a program, it gains access to its larger pharma partner's expertise and resources for developing and commercializing a drug. Securing a strong partner through a licensing deal can build value and contribute to your company's long-term growth.
- Watch your spending: Tough times demand tough decisions. Small companies are being pushed to make their cash reserves last longer than they ever thought necessary. Burrill recommends suspending, selling or cutting non-core R&D projects to focus on a lead program. In some cases, this may mean job cuts, as many biotechs have already discovered.
- Go virtual: As companies cut permanent staff to control costs, one option is to pursue an ultra-lean "virtual" model. A virtual company can rely on third parties to assist with development, testing, manufacturing and commercialization of a drug, without building up a large, expensive infrastructure. Additionally, the company can adjust its size and costs as its program moves through the development process.
- Explore creative deals: In the current environment, accessing funding through traditional means such as venture capital will be very expensive. Companies should explore alternative paths, such as registered direct offerings, or selling part of your future product's royalty stream.
- Look outside the U.S.: Just as many Big Pharma companies are looking beyond our borders, so too should smaller biotech companies. Therapies that don't attract much attention in the U.S. may meet an unmet medical need in another part of the world. And emerging markets offer unparalleled opportunities for growth.
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