Are biotech's tough times over?

I've been writing about business and the economy now for more than 25 years, and I've seen plenty of ups and downs along the way. One of the biggest downs was arriving in Texas in the late ‘80s to edit a business weekly, right after the state got hit by a triple whammy: a plunge in real estate values, the S&L crisis and a disaster in the oil market. That was an education in economic survivalism. It also taught me that what goes down will come back up.

But I've never seen anything quite as gut wrenching as the economic meltdown that occurred last year and the day-by-day death watch that started at the beginning of this year.

Any industry is affected by a recession, but biotech is a particularly fragile affair. There are few other industries where the average business model revolves around spending a whole lot more than you can reasonably expect to bring in. For the first few years, it's common to have no revenue and just six to 12 months operating capital in the bank. If you did well, though, there was always more investment capital to be had.

So when the world turned upside down and investment capital became scarce as the IPO market disappeared beneath the choppy waters of the Great Recession, the runway for many developers ended at the edge of a cliff. They had just one way to go.

By the spring, though, I had the sense that most of the execs in this business had checked their pulse, found they were still alive and kicking, and got on with it. That is, after all, something else that characterizes an entrepreneur, of every nationality. We get on with it.

And over the past few weeks we've been treated to the first sustained signs that the Great Recession is loosening its grip. The market has staged a rally, and some dramatic successes in the clinic have been rewarded with breathtaking increases in stock values. Just look at Human Genome Sciences, which had been struggling with lupus for years only to take the market by storm with an unprecedented success in Phase III. Its share price has soared, giving it a chance to raise $358 million--and that was before rumors started flying that Glaxo was looking at a buyout. In the scary days of spring, its stock was priced at 45 cents. Yesterday it closed at $18.96.

Takeover rumors are starting to proliferate, no doubt pushed along now that some of these companies are starting to look cheap. Higher stock prices are giving some of the public developers a chance to raise fresh funds. And the IPO window, virtually welded shut for two years, has creaked open with a successful public offering from Cumberland Pharmaceuticals. Their success is inspiring others--including, perhaps, Omeros and Talecris Biotherapeutics--to start thinking about mounting an offering as well. A few weeks ago, Acceleron CEO John Knopf took me by surprise when he speculated that early 2010 is beginning to look like a good time to go public. I hadn't heard anything that cheerful in quite some time.

But that's just anecdotal evidence. Signals Magazine, an online pub which tracks biotech trends, concluded that in the first half of this year, "biotech and specialty pharma firms raised more than $8.3 billion from all sources (excluding revenues and payments from corporate partners)." In the first half of 2008, that figure was $5.9 billion. Public offerings ginned $1.2 billion, up 78 percent. Alternate financing routes, which includes private placements, soared 75 percent to $4.8 billion.

That's hard evidence that the green shoots are appearing everywhere. Of course, if some of the bears are right and we're headed into a second recessionary shock, it's the tender plants that will get hit the hardest. Still, when I see more billions flowing into the industry, it's reasonable to conclude that the worst may well be over. It's been a heck of a storm. Something to tell the grandkids. - John

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