Bioscience Companies Showing Signs of Strength and Making New Investments
Although the financial crisis has battered many bio firms, there are still signs of strength and new investments on the horizon to sustain this sector's vitality.
Biotechs Are Sensitive to Financial Tsunami
"We're in one of the most financially challenging chapters in our history," reports Patrick Kelly, Vice President of State Government Relations for the Biotechnology Industry Organization (BIO). This Washington, D.C., group represents over 1,200 biotech companies and related organizations in the United States and abroad.
"By far, these are the most difficult circumstances we've found ourselves in since the inception of the industry in the early 1980s," he explains. "We are a very capital- and investment-intensive industry. [Unfortunately] the financial markets are essentially all but closed now - particularly to many new ventures - by the current economic climate due to risk factors associated with biosciences."
Bernard Madoff is probably the ugliest poster-boy face of the biosciences funding problem. His infamous Ponzi scheme was responsible for the closure of the nation's 71st largest foundation, The Picower Foundation of Palm Beach. With nearly $1 billion in assets, this mammoth grant-maker funded numerous organizations engaged in "education and medical innovation," including MIT brain research and Harvard Medical School diabetes research.
While nascent bio firms weren't directly affected, they're still caught up in the mess nonetheless. The scheme has made many investors jittery about infusing cash into "too risky" start-ups - even those with much promise. In the fourth quarter of 2008, venture capitalists invested $5.6 billion in 790 deals, according to Genetic Engineering & Biotechnology News (3/15/09). That was down from the $8.1 billion invested in 850 deals in the fourth quarter of 2007.
When interviewed in mid-March, Kelly explained that many small bio companies "have less than six months of operating cash in their coffers." If there is not a significant change made in the financial markets soon, he predicts these firms will go out of business or potentially have to sell out to larger companies. To make matters worse, over half of the biotech companies in existence today "have less than a year's worth of operating capital remaining. And about a third of them have less than six months [of capital]."
Compared to many smaller biotechs, "large pharma companies have a bit more cushion [in this financial environment] due to having more cash on hand," notes BIO's Kelly, pointing to merger action. While that activity may create a few very successful, very big companies at the end of the day, he opines that ideally the industry is better served with more competition.
But again, market forces are making it extremely difficult for that to happen - especially for small biotechs who want to "live the dream," says Kelly. He believes every biotech CEO "wants to bring a drug product to market and successfully launch it to heal or treat people, or use non-healthcare biotechnology, like biofuels, to help people."
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Snapshot View of a Knowledge Industry
At a recent bioProcessUK meeting, Dr. David Parry, CEO of the South East Health Technologies Alliance in England, claimed that his nation's Greater South East region (which includes London and Brighton) is the world's largest health technology cluster. It pumps out $142.6 billion in revenues each year thanks to 4,700 pharma, biotech, medical device, and diagnostic firms. Not every community can grow a cluster that huge. But the drive is strong for regions worldwide to develop innovative, knowledge-drenched bio hubs with high-wage jobs.
Where are these centers in the U.S. and Puerto Rico? The answer is in the study "Technology, Talent and Capital: State Bioscience Initiatives 2008" (www.bio.org/local/battelle2008) released last year by BIO (the Biotechnology Industry Organization) and Battelle. It provides data on national, state, and metro bioscience employment and growth trends from 2001 to 2006, and on performance metrics and state policies/programs designed to accelerate biosciences growth.
Key findings include:
• U.S. employment in biosciences in 2006 was 1.3 million.
• Average bioscience job wages in 2006 were $71,000.
• Each bioscience job generates an additional 5.8 jobs.
• Thirty-five states, the District of Columbia, and Puerto Rico have an employment specialization (20 percent or more concentrated than the nation) in at least one of four bioscience subsectors: drugs and pharmaceuticals; medical devices and equipment; research, testing, and medical laboratories; and agricultural feedstock and chemicals
• Twelve states - California, Illinois, Indiana, Iowa, Massachusetts, Minnesota, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, and Texas - have both a large (more than 5 percent of total U.S. employment) and specialized bioscience base in at least one of the bioscience subsectors.
• Academic bioscience R&D expenditures in 2006 were $29 billion.
• More than 82,000 bioscience-related patents were issued between 2002 to 2007.
More signs of growth are emerging in spite of the economy's woes. For example, in Ohio, plans are under way to create a global hub for biomedical research and commercialization. The engine is the BioInnovation Institute, which opened last November in Akron. It brings together Ohio's world-class organizations, researchers, and educators in the polymer industry and biomaterials/biomedical fields "to generate the next generation of life-enhancing innovation for the 21st century." Supporting partners secured $80 million, while the state added over $8 million through the Ohio Third Frontier Project - a 10-year, $1.6 billion initiative to help catalyze connections between companies and academia.
At a regional level "Military City USA" - San Antonio, Texas - is picking up steam with its substantial healthcare/bioscience assets comprising the city's biggest economic sector. About 4,500 of its 116,000 employees (14 percent of the work force) are in bioscience research, while 1,200 are employed in vaccine and pharma manufacturing. Over 700 Ph.D. bioscientists work in academic institutions. The sector's local economic impact? A whopping $16.3 billion.
Currently the Department of Defense (DoD) is consolidating its enlisted military medical training here as a result of the Base Realignment and Closure process. This will expand what is already one of the nation's largest military healthcare/biomedical research complexes. The DoD will build or renovate a total of six million square feet in San Antonio, with $2.1 billion in construction planned.
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