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…Then David Slew Goliath
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Business New Haven
2/7/2000
By: Michael C. Bingham
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Wall Street's 1999 infatuation with Internet companies may soon be transferred to biotechnology firms - perhaps decisively altering the balance of power between the small biotechs and the pharmaceutical giants whose investments have nourished them and upon whose continued sustenance they still depend.
That is one probable scenario posed by Roger Longman, managing partner of the Norwalk-based Windhover Information Inc., whose January 27 address kicked off BioHaven 2000, an information and networking program series, at the Yale School of Management.
Jointly sponsored by Connecticut United for Research Excellence (CURE), the Connecticut Venture Group, the MIT Enterprise Forum and Yale University's Office of Cooperative Research, BioHaven 2000 is a series of programs designed to address bioscience issues of importance to the Connecticut economy.
Longman described a number of trends emerging within the pharmaceutical industry. For example, due to the astronomical costs associated with the development of new medicines, more pharmaceutical companies will be forced to contemplate mergers. He predicted that deal-making between pharmaceutical firms and smaller biotech companies will continue to evolve - very likely in favor of the little guys.
In the mid-1990s, pharmaceutical companies rushed to forge high-cost early-stage technology deals with their smaller cousins. But when many of these compounds failed to make it to market, the “pharmas” became “obsessed with certainty,” Longman said, and shifted their investments into nearer-term, lower-risk projects - especially drugs in Phase III or later clinical trials.
Longman said that before long, demand for these late-stage products began to outstrip supply, driving investment costs skyward. Relatively speaking, he said, “Early-stage deals are now cheap, while the NPV [net present value] of late-stage deal-making is shrinking.”
Another reason is the run-up in share prices of many of the publicly traded biotechs. From about 1988 to 1997, the average biotech initial public offering (IPO) yielded an average of $97 million, Longman said. More recently, “I can't remember [a biotech IPO that generated] less than $400 million.
And because the biotechs typically have fewer shares on the market, even temporary infatuation on Wall Street can result in eye-popping price increases - further fueling the frenzy. By contrast, most pharmaceutical stocks have been flat or down in recent weeks and months.
“Shareholders are picking potential market dominators and supplying them with more weaponry [money],” Longman said. “The world has gone topsy-turvy.”
Longman writes about the pharmaceutical and biotechnology industries in IN VIVO: The Business & Medical Report and START-UP: Windhover's Review of Emerging Medical Ventures.
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