By Donald Zuhn --
With the BIO International Convention less than a month away, a report in the San Francisco Chronicle is predicting that the U.S. biotech industry may be looking at some rough times ahead. The Chronicle's prediction is interesting given its citation of a recent Ernst & Young study that noted that U.S. biotech companies had secured $21.3 billion in financing in 2007. The portion of this total coming from venture capital firms ($5.5 billion) topped the record set in 2000 at the height of the Human Genome Project.
Showing a hint of partisanship, the Chronicle observed that the Bay Area ("where the industry was born") had topped all other regions in funding in 2007, with Boston coming in second. In particular, the Bay Area biotech cluster consists of the 77 biotech companies having 40% of the market value of U.S. biotech companies, and the New England biotech cluster consists of 62 companies having 17.6% of the market value.
The Chronicle's less than sunny forecast was based on comments from Ernst & Young's U.S. life sciences director, Scott Morrison, who noted that many factors could lead to a downturn in financing in 2008. Among these factors is the subprime mortgage meltdown, which Morrison said was partly to blame for a 60% decrease in biotech funding this year. Morrison noted, however, that the industry was well-prepared for a financing squeeze, as almost half of the 386 U.S. traded biotech companies have more than two years of cash reserves on hand, and more than a quarter have five years of cash reserves.
And it may not even be necessary to tap into these cash reserves, since, according to Morrison, venture capital funding continues to be strong. The primary reason for the steady VC funding appears to be the desire by big drug makers to replace drugs that will soon be going off patent with new therapeutics, a quest that often finds the big drug makers acquiring or partnering with VC-funded smaller companies. (The Ernst & Young report noted that the value of biotech mergers, acquisitions and drug development alliances was nearly $60 billion in 2007, which was a new high.)
The San Jose Mercury News also reported on the Ernst & Young report, focusing on the fact that biotech companies once again spent more money than they took in, losing almost $2.7 billion last year. On the bright side, this was down from the $7.4 billion in losses the industry suffered in 2006.
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