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Bio Technology : October 2009
Volume 19 • Number 3 • October 2009 Australasian BioTechnology 13 1999-2 0 50 100 150 200 250 300 350 400 450 No of Deals Qtr US VC Deals (4-qtr moving average) 1999-4 2000-2 2000-4 2001-2 2001-4 2002-2 2002-4 2003-2 2003-4 2004-2 2004-4 2005-2 2005-4 2006-2 2006-4 2007-2 2007-4 2008-2 2009-2 2008-4 Later Stage Expansion Early Stage 1999-2 0 1000 2000 Value of Deals US$M US VC Deals (4-qtr moving average) 3000 4000 5000 6000 1999-4 2000-2 2000-4 2001-2 2001-4 2002-2 2002-4 2003-2 2003-4 2004-2 2004-4 2005-2 2005-4 2006-2 2006-4 2007-2 2007-4 2008-2 2009-2 2008-4 Later Stage Expansion Early Stage Qtr AusBioFEATURE --- AusBiotech 2009 Post-GFC perspective on VC funding and biotech in the US By Peter Molloy, President & CEO, Aquarius Consulting Presenter at AusBiotech 2009 11.30am – 1.00pm, Wednesday 28 October Biopharmaceuticals in a post GFC world In 2000, not long after leaving big pharma, I found myself running a small cancer drug discovery biotech in Madison Wisconsin and struggling to make payroll. Luckily in 2001 we closed a licensing deal with a pharma company giving us a much-needed injection of USD $5m, enough for two years funding; but a storm was brewing. That year the genomics bubble had emphatically burst and now the VCs were pulling out of early-stage biotech faster than a Bondi rip. I told the board we needed to string the cash out for three years, but they believed that with a partner in place and a drug in the clinic, VCs and pharma would ‘beat a path to our door'. Eighteen months later they closed their doors but by then I was long gone, joining Biota in 2002 to find they had their own expensive US drug discovery unit that they wanted to handball to the 'safe' hands of the US VCs. Fat chance in 2002, but we went through the motions, pitching to every VC who'd listen. We closed it down two years later after 'feeding the beast' more than USD $20m. I guess stories of thwarted aspirations about getting US VC funding are not rare, but it should have been obvious from the data emerging in 2002. What made matters worse was that much of the VC funding was directed at feeding struggling portfolio companies rather than new ventures, a problem still existing now. Fortunately we were yanked out of the doldrums in 2003/04 Source: PWC MoneyTree Report Q2 2009 Peter Molloy was an international marketing VP at Pharmacia and then the CEO of three biotech companies in the US and Australia. Since 2005 he has worked as a US-based consultant and director for Australian companies. by a market rebound on the back of Avastin's imminent launch. Since then, although it might not have felt like it in Australia, US VC funding was pretty solid up to mid--2008 and then crashed with a thud after Q3 in response to the GFC. Interestingly, we saw a spike in VC funding in Q2 2009, driven by a surge in large value 'cleantech' deals chasing new US government grants, tax credits and other funding initiatives from the Obama administration. Unfortunately, drug discovery biotech is tougher than it's ever been and looks like staying that way for some time as VCs keep their risk aversion elevated and big pharma cuts costs while picking over increasingly cheap pipelines from any of the hundreds of US biotechs that have less than six-months cash. So can we count on pharma to pull us all out in 2010? In a post-Obama world, who knows? In June, PhRMA cut a deal with the White House promising USD $80 billion in price discounts on branded drugs for seniors and a USD $150m advertising campaign to support the Obama healthcare plans, in exchange for protection from price controls under the new plans. Initially the White House publicly affirmed the deal but the celebrations at big pharma were short-lived, with Congressional Democrats, led by Pelosi and Waxman, storming the White House and complaining about taking price controls off the table and "what were you thinking anyway!" dealing with the evil pharmaceutical industry. The White House quickly backpedalled on the deal but welcomed the USD $80b in discounts. Pharma retaliated by curtailing their advertising program. Belatedly, the Republicans came out and lambasted big pharma for supporting Obama's health care plans in the first place. So with pharma beaten up from all sides and price controls back on the table, I don't expect pharma will be leading the charge. If the Obama healthcare plan fails to get through, as many expect, when Congress returns in September, then we can hope that pharma's looming patent 'cliff' and their urgent need for new pipeline defibrillates them out of their GFC/Obama coma. Or maybe we just need another Avastin?