By John Carroll, Mark Hollmer and Ryan McBride
Wheeling and dealing at J.P. Morgan 2012
Every year everyone who either qualifies as a top dealmaker in biotech or aspires to be one converges on San Francisco at the J.P. Morgan Healthcare Conference to check the pulse of the financial markets. It's where you talk programs and deal terms, hopes and aspirations. And this year's gathering had its share of bright new ideas and pioneering technologies, tempered by the simple reality that the key financial trends we'll see in 2012 have already been playing out for several tough years.
"I don't see any significant changes," says Ernst & Young's longtime life sciences analyst Glen Giovannetti. This year, he adds, shouldn't end up all that different from 2011, or 2010 for that matter. With the Eurozone crisis adding to the financial alarms that have kept many investors sidelined since 2008, "you're not going to get mainstream investors in biotech."
That means little or no chance of a stellar IPO success in the immediate future for clinical-stage drug developers and a continued constrained environment for venture groups, which will struggle to find timely exits.
With dwindling resources for privately held drug developers, leaders are calling on Big Pharma outfits to pump dollars into the biotech ecosystem. "The ecosystem is shrinking," says Roger Tung, CEO of Concert Pharmaceuticals, a venture-backed group based in Lexington, MA. "VCs don't have the same firepower that they did 5 years ago. I think pharma is going to have to step up to feed their own ecosystem where they get a lot of their products from."
The situation has become so bad, Alnylam ($ALNY) CEO John Maraganore joined Glaxo's ($GSK) Moncef Slaoui and retired investment banker Stelios Papadopoulos to pen an op-ed piece calling on Big Pharma to join forces and pump billions of dollars into new funds that will be charged with backing biotech IPOs, giving developers the kind of financial support needed to get the industry growing again at a rapid pace.
"I worry a lot about companies not getting funded because there's no IPO window," says Alnylam's Maraganore. A revived public market could give investors the exits they need and go a long way to resolving the cash crunch.
On the other hand, despite all the grim forecasts from the end of 2011, venture groups continue to pump money into new companies and existing biotechs that can toe the line on science and data points. Canaan Partners and Flagship Ventures helped underscore that point over the course of the week, as they timed announcements on $470 million in new venture cash for the industry. Flagship's new $270 million fund was oversubscribed, but the venture group isn't in a celebratory mood.
When we asked Flagship chief Noubar Afeyan about the mood of his investors, he underscored how discouraged many had become. "It is a tougher environment." Success will be reserved for the best and the brightest.
"In this biotech jungle," says Forbion Capital Partners Chairman Bart Bergstein, "the toughest and smartest will survive."
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