Wednesday, December 17, 2008

Dude Where’s My Bailout: US- and UK-biotech edition

This was going to be a posting a few weeks back when the US automakers were heading (back) to Washington in search of billions. Unlike the Wall Street package, most believed the financial struggles from Detroit were based only in-part on current economic turmoil and largely based on a flawed and unsustainable business model.

And so I penciled a what-if posting about pharma heading to Washington. Sure the largest players in the industry are sitting on billions in cash, but the coming struggles are well-known as some will lose over 40% of their revenue over the next 2 years with key products coming off-patent. Could they get in line for a bailout?

But before I could get back on-line and move from pencil to keyboard, BIO beat me to it.

Despite the headlines, the BIO request is perhaps more a cash-advance than a bail-out. Currently companies can use today’s operating losses to offset future taxes when they are profitable. The request in Washington is to let companies receive money from the government today in exchange for giving up those future tax deductions.

And BIO cites a direct linkage to the financial crisis – lack of access to capital coupled with roughly 25% of publicly-traded biotechs having less than 6 months of cash equals an inability to fund expensive clinical trials (or even stay afloat altogether). As the NY Times article notes, “the change, if Washington approved of it, could enable the industry to receive potentially hundreds of millions or even billions of dollars, on the condition that the money would be used for research and development.”

Meanwhile, a similar story from the UK -- although here perhaps more of a bail-out compared with a tax reshuffle. As proposed, first there would be a £500 million ($740M USD) government fund set-up to support consolidation among smaller biotechs. Then there would be a £100 million ($146M USD) VC-backed fund to enable larger biotechs to pursue acquisitions and fund clinical trials.

Impact on drug development – Increasing the potential for companies and trials to survive the economic chaos...especially as proposals in the US and UK stipulate applying funds toward R&D.

No comments: