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Biotechs seeing green this St. Patrick’s Day
03-09-2009
by Amy Swinderman  |  Email the author
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March 17 is St. Patrick's Day, a church festival and day-long party celebrated by millions of people around the world seeking good luck and good fortune. Here in Cleveland, where DDN's home office resides, bagpipers march down historic Euclid Avenue and Northeast Ohio's strong Irish population and non-Irish residents alike rise in the wee hours of the morning to don green garb, drink green beer and paint the town emerald. Oddly enough, as analysts predict that most retailers and manufacturers will see less green this St. Patrick's Day—unless you're counting bailout bucks, that is—they remain bullish on the financial outlook for biotechnology.

Indeed, merger and acquisition activity along with licensing transactions remain brisk and is central to the bullish outlook for biotechnology, Michael Becker, president and CEO of MD Becker Partners LLC, recently wrote in his blog, Seeking Alpha. This is especially evident in Astellas' unwavering quest to acquire CV Therapeutics, Becker commented.

"The bullish thesis for biotechnology in 2009 remains intact, as evidenced by the sector's defensive characteristics and favorable technical and fundamental attributes. The favorable outlook is further bolstered by the sector's relative outperformance during January 2009," Becker wrote.

Market research firms are in agreement, as you'll see from Burrill & Company's report in this issue on page 4. Peter Winter, editorial director for the San Francisco-based firm, notes that apart from Genentech, whose shares took a hit following the news that Roche was in hostile takeover mood for the remaining shares of the company it doesn't already own, most blue-chip biotechs posted small gains. As a result, the Burrill Biotech Select Index was only down marginally in January in stark contrast to the broader markets. Wall Street, as we all know, ended its worst January on record.

With the U.S. economy officially entrenched in recession, and most news reports concentrating on layoffs and streamlined operations, the Battelle Memorial Institute and R&D Magazine offered some positive financial news for the industry: with biotechnology becoming an area of focus for many organizations around the world, R&D funding continues to experience a decade-long growth trend.

Although the groups reported in their 2009 Global R&D Funding Forecast that the economic downturn may have slowed growth somewhat, they found that that overall spending on research and development in the U.S. will have increased to more than $383 billion during the fiscal year that ends this month. The U.S. leads the world in funding, with Japan and China in a distant second and third place, according to the report.

"The continued growth in funding is encouraging because research and development is critical to the advance of science and technology, helping further scientific knowledge, improving the human condition and resulting in new and innovative products," added Tim Studt, a co-author of the annual study for more than 20 years.

One area that isn't quite so Kelly green is that of venture capital investments. According to a report recently released by PriceWaterhouseCoopers, the National Venture Capital Association and Thomson Reuters, venture capital investments across almost all sectors plunged in the fourth quarter of 2008. For biotechnology and medical device industries, $1.6 billion was invested in 185 companies, which is a 31 percent decline in dollars and a 22 percent drop in deals, according to the report.

Still, as reports of private placements and substantial investments continue to cross our desks, the future seems as bright as the dye in the Chicago River on St. Patty's Day, according to most analysts.

In a conference call, Tracy Lefteroff, global managing partner of PricewaterhouseCoopers' venture capital practice, predicted venture investing will pick up in 2009, "maybe not in the first quarter, but certainly throughout the year."

"I personally think we're going to see it tail up again and reach historical norms," he said.

And Bob More, a general partner at healthcare venture capital company Frazier Healthcare, told Google News that companies which are being financed now are likely to be candidates for an initial public offering in five to seven years.

"We certainly hope that will be a very different environment from what we're in now," More added.

And that's no blarney.

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