It’s already March 2009 and the choppy waters in the life sciences industry, in part caused by turmoil in the financial marketplace, do not appear to have an end. According to Burrill & Company, a leader in life sciences venture capital, fundamental change is occurring in our industry. They note, over the last 40 years, there has been relatively easy, constant and cheap access to capital which has historically been the engine behind growth and innovation. The life sciences industry wasn’t necessarily built off of sales revenue and instead, built off of access to capital which may have enabled some companies to survive over a decade in hopes they will eventually have the revenue bases to support them. Today, the landscape has shifted on two levels, money is more expensive to borrow and largely inaccessible. Further, the Wall Street buy side and sell side players have dramatically changed. The world is well aware of the departure of bastions such as Bear Stearns and Lehman Brothers . . . Who would have thought that Merrill Lynch would have been absorbed by Bank of America?
Only 1 Biotech firm went public in 2008 and predictions are the Initial Public Offering (IPO) space will continue to be a tough year in 2009. The guess is there will be very few IPOs completed in 2009 and they will be the companies that have proven revenue growth coupled with limited risk. Gone are the IPOs with large technology or regulatory risk. Additionally, venture backed companies looking for more rounds of development capital will be questioning their outlook.
As an investor, you have to wonder about the effect of what is happening. There are many companies now that are below $100M in market capitalization trading at shockingly low prices.
Cash is king and debt is behind the times. Companies in the life sciences space will struggle until financing alternatives become more attractive and less expensive. Technology vendors looking to increase their ability to pursue and win major projects need to be mindful of these sobering trends and be prepared to quantify their value and strategically quote and price solutions. The sky isn’t necessarily falling, but the rain doesn’t appear to want to subside any time soon.
The Emerson Global Life Sciences Team
Works Cited
Burrill & Company. “The Burrill Report: Outlook for the Capital Markets.” Online posting.
31 Dec. 2008. The Journal of Life Sciences < www.tjols.com/rss/podcasts.xml >
31 Dec. 2008. The Journal of Life Sciences < www.tjols.com/rss/podcasts.xml >
