Commentary on Surviving the Biotech Crisis

Apologies for the significant delay in getting going with the blog. On Wednesday there was an interesting piece in the FierceBiotech (see below).

Five tips for surviving the biotech crisis (full article)

The going has been tough for small companies as of late. Developers that rely on regular cash infusions from investors have been hit hard by the financial crisis as those investors move away from funding high-risk, early-stage programs. That’s not to say funding isn’t available for good science–it is, but at a much higher cost than in years past.

“Remember that cash is king and companies must do all they can to access capital and conserve cash,” says G. Steven Burrill, CEO of Burrill & Company, in a Burrill Report feature. The piece outlines several steps biotech companies can take to find cash, pick the best partner and stay afloat in the economic crisis.

  • Think licensing, not just M&A: Mergers and acquisitions are hot right now. Big companies can pay the same price for an entire small biotech as they would have for a single program a few years ago. M&A may be the right choice for some developers, but when a biotech chooses to license a program, it gains access to its larger pharma partner’s expertise and resources for developing and commercializing a drug. Securing a strong partner through a licensing deal can build value and contribute to your company’s long-term growth.
  • Watch your spending: Tough times demand tough decisions. Small companies are being pushed to make their cash reserves last longer than they ever thought necessary. Burrill recommends suspending, selling or cutting non-core R&D projects to focus on a lead program. In some cases, this may mean job cuts, as many biotechs have already discovered.
  • Go virtual: As companies cut permanent staff to control costs, one option is to pursue an ultra-lean “virtual” model. A virtual company can rely on third parties to assist with development, testing, manufacturing and commercialization of a drug, without building up a large, expensive infrastructure. Additionally, the company can adjust its size and costs as its program moves through the development process.
  • Explore creative deals: In the current environment, accessing funding through traditional means such as venture capital will be very expensive. Companies should explore alternative paths, such as registered direct offerings, or selling part of a future product’s royalty stream.
  • Look outside the U.S.: Just as many Big Pharma companies are looking beyond our borders, so too should smaller biotech companies. Therapies that don’t attract much attention in the U.S. may meet an unmet medical need in another part of the world. And emerging markets offer unparalleled opportunities for growth.

We agree completely with the advice given by Steve Burrill about cutting expenses going virtual, thinking more about licensing, looking for alternative deal structures, and going abroad. We are still surprised that he did not mention hiring external groups to help with strategy and transactions. It is impossible for small and mid-sized life science companies to have all of these core business functions in house. Why hire a Chief Financial Officer, Chief Marketing Officer, and Chief Business Officer for a company without at least phase 3 data? A majority of biotech companies are earlier stage than that and probably only need a CBO or CFO. It is rare to find a person who can do all strategy, commercial, financial, and transactional elements at both a strategic and tactical execution level. Without a full commercial, that is where we think Locust Walk Partners fills a unique niche in the life science world.