US Biotech Financing Expected to Reach Decade Low in 2008

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PTSM: Pharmaceutical Technology Sourcing and Management

PTSM: Pharmaceutical Technology Sourcing and Management-11-05-2008, Volume 4, Issue 11

Uncertain economic times crimp the financing flow into the US biotechnology industry.

Financing for the US biotechnology industry is expected to reach only $10 billion (excluding partnering deals) in 2008, which would represent the lowest amount raised by the industry since 1998. Through the first three quarters of 2008, nearly all forms of public and private financing are down from annualized levels in 2007 and 2006, with initial public offerings (IPOs) taking a particularly hard hit. 

“In terms of biotech IPOs, 2008 is shaping up to be one of biotech’s worst in history with only one completed to date,”said G. Steven Burrill, CEO of Burrill & Company, a private merchant bank, in an Oct.1, 2008 press release. “Except for venture-capital deals, which have remained at steady state for the past three quarters, generating about $1 billion each quarter, all other forms of financing have fallen compared to the first quarter of 2008 and comparative 2007 figures.”

Collectively, financing for US biotech public and private firms was $2.5 billion in the third quarter, bringing the year-to-date total to almost $8.2 billion, according to Burrill & Company. “The industry is on pace to generate about $10 billion in the year. You have to go back to 1998 to find a smaller amount that was raised by the industry,” said Burrill.

A look at the numbers shows the difficult time US biotech companies are having this year in raising money. US biotech companies raised only $6 million in IPOs through the third quarter of 2008, which includes no IPOs in the second and third quarters and only $6 million in the first quarter of 2008. These levels are well below financing through IPOs in 2007, when $2.04 billion was raised, and in 2006, when $920 million was raised, according to Burrill & Company.

Other forms of public financing in 2008 are down from 2007 and 2006 levels. Follow-on offerings accounted for nearly $1.71 billion through the third quarter of 2008 for US biotech companies. For the full-year 2007, follow-on offerings tallied $6.31 billion, and in 2006, they were $5.77 billion. Funds raised from private investment in public equity was $881 million through the first nine months of 2008 compared with $1.62 billion for the full-year 2007 and $2.02 billion in the full-year 2006, according to Burrill & Company. Roughly $2.39 billion was raised via debt by US biotech companies through the first three quarters of 2008, compared with $6.75 billion for the full-year 2007 and nearly $14.0 billion in 2006.

Private financing in the form of venture capital has been the one bright spot in the US biotech industry. Through the first nine months of 2008, roughly $2.93 billion was raised through venture capital, which was a reasonable pace compared with venture capital of $4.43 billion raised in 2007 and $4.24 billion in 2006.


The value of partnering deals is also low in 2008. Through the first nine months of 2008, financing from partnering deals in the US biotech industry was $10.19 billion, which is well off the pace set for the full-year 2007,when $22.37 billion was raised, and the full-year 2006, when $19.80 billion was raised.

Although they declined by almost $1 billion in the third quarter of 2008 compared with the second quarter of 2008, partnering deals generated more than $2.9 billion for US biotechnology companies. Notable deals in the third quarter included a partnership worth up to $820-million between GlaxoSmithKline (London) and Valeant Pharmaceuticals (Aliso Viejo, CA) for the investigational drug retigabine, a neuronal potassium channel opener for treating epilepsy. Pfizer (New York) signed a deal worth potentially $725 million with Medivation (San Francisco) to develop and commercialize “Dimebon” (dimebolin), Medivation's investigational drug for treating Alzheimer's disease and Huntington's disease.

The troubling financial times for US biotech companies is evident in potential cash flow problems. In the US, 38% of 370 small biotech companies are operating with less than a year's worth of cash, and nearly 100 publicly traded biotech companies have less than six months' cash, according to a recent article in the Wall Street Journal (1).

The financial strength of the biotechnology industry is critical for contract manufacturers that supply the industry, particularly those that supply smaller companies. Stefan Borgas, CEO of Lonza (Basel, Switzerland), one of the largest contract manufacturers of biologics and small molecules, noted in the company’s third-quarter earnings release dated Oct. 27. 2008, that its biopharmaceutical- services business was negatively affected by several project delays and cancellations in the early phases because of a slowdown in funding for smaller biotechnology companies.

1. J. Whalen and R. Winslow, “Cash-Poor Biotech Firms Cut Research, Seek Aid,” Wall Street Journal, Oct. 29, 2008.