The Financial Crisis and Biotechnology

October 3, 2008

This week we want to take some time on our Web site to focus on the profound impact the financial crisis has had on biotechnology companies.

Biotechnology companies are highly dependent on well functioning capital markets to finance their development projects since many will not see revenue for perhaps a decade.

It generally takes approximately $1 billion, including the cost of failures, to get a new therapy to market. This financing generally comes in the form of equity investment.

When credit markets seize up, as we've seen in the past 13 months, there is less capital available for investors to put at risk, and the capital that is put at risk is dedicated to shorter term, lower risk options. So while some areas of the economy have seen a slowdown, biotech has seen a near-freeze.

This means that our companies - especially our public companies - are in a very precarious situation: they must continue on their development projects, but are unable to attain additional financing from investors. As a result, many of the 300-400 public biotech companies are trading at very low levels, and many are operating with less than one year's cash remaining.

If credit markets don't open up, it's possible that the biotechnology industry may go through a considerable consolidation or shake out during the next year. The result? Companies with promising therapies may not be able to continue their work, delaying the availability of new options for patients.

We recognize this difficult climate for our industry. As Congress moves beyond the current crisis, we will work with members of Congress and the administration to develop a series of legislative and policy remedies that will help improve the investment climate and reduce administrative burdens. These initiatives include provisions to shore-up companies' balance sheets and incentives to attract and retain investment in our industry.

We will work with allies across numerous industries - those innovative industries similar to ours - as well as new partners to develop these initiatives and urge Congress for action.

Jim Greenwood
President and CEO
Biotechnology Industry Organization, BIO

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