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Biotech Survival Guide: Successfully Navigating the Downturn

Roland Andersson, PhD

Leerink Swann, Senior Managing Director, Boston, MA, USA

Frank Deane, PhD

Leerink Swann, Engagement Manager, Boston, MA, USA

Not all hope is lost. Biotechs that adapt to the current market and capital realities and focus on the most value creation activities will be able to survive and excel once market conditions improve.

Biotechs are feeling the crunch as volatile market conditions and recessionary fears are causing investors to keep their wallets close to the vest. Risk-averse investors are driving up prices of low-risk assets, putting significant pressure on higher risk assets—such as biotech equities and lines of credit.

Biotech equities declined by 12 percent on average on the NASDAQ Biotechnology index (NBI) during 2008. Small cap biotechs ($500M-$2B) and microcap biotechs (<$500M) declined even more, by 26 percent and 41 percent respectively. Borrowing costs have increased nearly ten-fold as measured by the TED spread (the difference in basis points between the yield on 3-month LIBOR and 3-month Treasury bills). Even blue-chip Large Pharma is not immune, as evidenced by Pfizer’s sky-high borrowing cost for the Wyeth acquisition. Risk aversion and higher costs of capital are causing innumerable difficulties for life science companies of all sizes and sectors.

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