Important to distinguish between the short-term and longer-term effects of the credit crisis
November 30, 2008
Analysts are advising investors to stay away from biotech companies in urgent need of capital. Goldman Sachs is predicting that as many as half of European biotech companies may fail due to the current credit crisis.
We agree biotech companies having to raise capital in the next 12 months will either be forced do so at the expense of shareholder value as a result of a lower valuation. Or they will not be able to raise capital at all. Other biotech companies, with limited financial resources, will need to conserve cash by closing/delaying a large part of their pipeline. We have already seen a number of Scandinavian biotech companies do so, and others will follow suit in the months to come. Those are the short-term effect of the credit crisis.
In the longer term we foresee an acceleration of the emerging trend towards more extensive and strategic partnerships between biotech- and pharmaceutical companies. Most biotech companies will find it harder, even in the medium- to long run, to raise capital and will be forced to look for alternative ways of financing their operation. At the same time many pharmaceutical companies are faced with blockbuster products coming to the end of their patent protection. Those companies need to focus much of their attention and efforts on feeding their pipeline.
These developments work to highlight the fact that the relationship between biotechs and pharma companies is co-evolutionary in nature. Like hummingbirds and flowers they have become dependent on each other and each others’ resources for their long-term survival.
The biologist will speak about how such species have grown ’structurally coupled’ to each other - how they are determining each other over time. Same is true for the relationship between biotechs and pharmaceuticals, only we humans have the added capacity for developing strategic tools for formalizing and optimizing such process of co-evolution. In this case those tools are: partnerships, alliances and M&As and we predict these tools will be employed more in the future.
The current credit crisis will act to strengthening the structural coupling between biotechs and pharmaceutical companies and that is the real and longer-term effect of this current crisis.
Best regards,
Nicolaj Højer Nielsen, Managing Director
BIOSTRAT BIOTECH CONSULTING
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