Life-sciences financier Steven Burrill put it on the line with biotechnology executives: The last 18 months of unprecedented financing is over.
It’s back to the same old grappling with issues of raising capital, pharmaceutical collaborations and consolidations.
The CEO of merchant bank Burrill & Co. in San Francisco, which funneled $400 million into life-science companies, chaired the panel on “The Future of Life Sciences Financing” at BIO 2001 last week.
Highlighting the record-breaking year 2000, Burrill said, the U.S. biotechnology sector raised $32 billion; completed 66 IPOs; and ended the year with a market cap of $441 billion.
This compares to $2.1 billion raised in public offerings during the first half of this year.
The biotech sector suffered tremendously during the first quarter of 2001, Burrill said.
Though biotech stocks rallied in May, they quickly plummeted again.
That’s not to say all is lost, Burrill said.
“We are already beginning the return of the equity markets interests in biotechnology,” Burrill said. “This happens with more substantial companies attracting financing through larger secondaries, convertible debt and other vehicles.”
He cited Genzyme Corp. in Cambridge, Mass., and Cephalon Inc. in West Chester, Pa., as recent examples of having signed large deals.
These types of deals are signs the IPO window will open again during the second half of 2001, Burrill said.
He projected 17 more IPOs by the end of the year. During the first quarter, only three biotech firms raised enough money to go public.
Burrill also was enthusiastic about pharmaceutical deals, which often drive the success of biotech firms.
He said partnerships will continue, but become increasingly difficult as the pharmaceutical industry revamps itself.
The trend of “mega-mergers” within the pharmaceutical industry , spawned by expiring patents and global product sales , will leave the sector with five or six firms by 2006, Burrill said.
As the resulting mega-companies wrestle with issues such as creating new identities, biotech partnerships will take a back seat, he said.
Burrill said the consolidation frenzy will spill over to huge computer firms like IBM and Sun Microsystems.
The computer giants are increasingly investing in biotechnology to help scientists sift through data faster.
“Bioinformatics,” the marriage between high-tech and biotech, is on the rise.
Burrill said computer makers will consolidate, but also buy companies.
Toolbox firms will be on computer maker’s radar screen.
They too develop technologies that help scientists get results faster, such as research kits, screening technologies and other chemistry.
The sequencing of the human genome will continue to drive research in genes and proteins, Burrill said.
“Interest will grow and new proteomics companies will evolve,” he said.
But Dennis Purcell, senior managing partner of New York-based Perseus-Soros BioPharmaceutical Fund, L.P., was skeptical.
He said the mushrooming proteomics sector will be in vigorous competition for funding.
People are hopeful these companies , many of which are in San Diego , will deliver on their promise of identifying drug targets that will translate into unique drugs.
Whether they can deliver on their promise remains to be seen, he said.
Tighter Food and Drug Administration restrictions is another problem, Purcell said. Recent drug recalls have alarmed the FDA. Consequently, the FDA will take up to 17 months to review new drug applications.
The controversial issues of cloning, genetically modified foods and stem cell research will continue to drive ethical debates , nationally and internationally, Burrill said.
Burill said different cultures have different views about biotechnology, which will determine which projects get funded.
In Britain, genetically modified food is called “Franken-foods.” Certain religious groups condemn embryonic research and cloning.
“It is not smooth sailing in the financing world as a lot of people are going to be spooked by this industry,” Burrill said.
