As with most of the lectures at the 12th annual Journey Conference of Globes and Ernst & Young, the panel discussion on the topic of new trends in biomed, quickly turned into a debate about the economic crisis. On the face of it, the only figure which forebodes real catastrophe is the number of public offerings over the past 13 months zero. The other numbers VC investments, mergers and acquisitions, and available capital held by pharmaceutical companies still look good, although it is clear to everyone that this is only part of the picture and not representative. It does not include recent months, the most difficult of 2008, nor the coming months, which many believe will be even more difficult. The sector is also burdened by its usual problems less drug approvals, and in the medical devices sector, every approval takes longer and costs more.
Scott Sarazen, global biotechnology markets leader at Ernst & Young, said that between 2004 and 2007 good companies could hold public offerings regardless of the market situation. "We thought we had reached the end of the era of 'public offering' windows," he said. But that was a mistake, and today excellent companies cannot make public offerings, and in his estimation will not be able to until the middle of 2009. "This is despite the fact that the Bio Index has dropped in line with Nasdaq and not in any exceptional way." Among the public companies being traded today, about 100 have capital that will last them for at least a year. Even so, Sarazen is not especially pessimistic. "I believe that there will be a Darwinian process, which will eventually allow the good companies to survive. There are those who claim that the market cannot identify these companies, but I believe it does know how to."
Yoram Wilamowski, Partner, Head of Life Science, Ernst & Young Israel, stressed that 94% of Israeli biomed companies are still in the seed, R&D or perhaps initial sales in the medical devices sector, without a strategic distributor, and without a budget to build a distribution network..
So what can be done? According to Michael DeMane, until recently a senior manager at Medtronic and marketing manager for Canada, Latin America, Europe and developing countries, in mergers and acquisitions the most important thing is to develop a product that not only competes on the existing market, but is a pioneer in a completely new market, that can become a large market. Regulatory strategy is also important today, more than ever. He added, "in an era of uncertainty regarding the management of the FDA and insurance compensation bodies, it is very important to give your purchaser as much as possible to hold onto. Today, the FDA is prepared to devote time to young companies, and it is worth taking advantage of that." Insurance compensation must be one of four main strategic points confronting management, "so that they won't reach the market only to discover that they have cut compensation in half."
Abraham Ludomirsky, partner in Vitalife Fund, agreed that investments in a challenging period like today, will be focused only on companies offering pioneering products that do not compete in existing markets, and that is especially true in medical devices. He added that it is up to companies to offer investors three year programs. "Investors already know that if they raise capital for just six months or a year, they will immediately need to begin thinking about the next round of raising funds." Investors already understand the situation in the medical market through to approval. "So don't show them a business plan for sales within two years. It is more impressive to be realistic," he explained.
A question from the audience pointed out that, while the crisis had been well described, nobody had suggested real ideas on how to confront it. Sarazen explained that efficient use of funds was the solution, while Ludomirsky claimed that "salary cuts in a company not close to success were not helpful and only lengthened its demise in an artificial way." Ludomirsky believed that it was still possible for the right companies to raise funds.
Published by Globes [online], Israel business news - www.globes-online.com - on November 4, 2008
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