Jan 20

As these words are being written down, the world is going through extraordinary times, with a financial crisis not experienced since the world wars. Markets are in turmoils and uncertainty is part of many businesses and industries. Several financial analysis are available for us to read, but their content is often difficult to digest. The recession has badly affected many industries who are now desperately seeking help, such as the car industry. But what will be the specific impacts of the economic recession on the biotechnology and pharmaceutical industry.

The pharmaceutical and health-care industry have historically been relatively immune to economic turndowns, because illness doesn’t take a vacation. Yet, with the ongoing recession, financial support will be reduced. Therefore, like in other industries, it is expected that the most affected by the reduced availability in funding will be the early stage biotech and pharmaceutical companies who need funding. But is there more to come?

There are a few possible speculations.

  1. There is a possibility that things will get worst due to the fact that the market will be so uncertain that no financial investors will be willing to back up any company with a risky profile, notably in regards to the early or short term investments. In the event of this scenario, all industries will be affected. Companies with little cash will go one by one, until the economy heals.

  2. Investors are often reluctant to put their money into biotech and pharmaceutical companies because of other very attractive industries such as buyouts and investments in resources (mines, oil). As the economic crisis goes on, the opportunities for capital will decline further. Because of the known and well recorded risk profile of the biotech and pharmaceutical industry, investors are going to stay away and put their assets in sectors with none to low risks. However, exit routes also play an important role. Unless there is a fast return, there is only one way for a biotech/pharma company to be profitable: through acquisition by a larger biotech or pharmaceutical company. Because of the way biotech and pharmaceutical companies usually grow, this is highly likely to happen. In this scenario, smaller companies, unable to sustain their finance could potentially ask bigger biotech/pharma company to bankroll them, allowing the industry to survive and even grow.

As a matter of fact, that second hypothesis has already started to take place. With today’s economic turndowns, big drug companies are on a shopping spree. With the stock market prices tumbling, acquisitions are becoming cheaper. Also, struggling to find loans and capital, smaller companies are now more enticed to turn to the bigger ones to survive. Many big pharma companies, such as Bristol-Myers, GlaxoSmithKline or Wyeth, have been staring down billions worth of drug-patent expirations and many of them have few up-and-coming drugs to fill the blank. This economic crisis has given them exceptional opportunities to find bargains amongst the unfortunate small to medium companies in need for funding.

Nonetheless, it is important to remember that although the recession has yield great merges and acquisitions by the bigger biotech/pharma companies, the biotech and pharmaceutical industry is also very affected by the economic slowdown, and many of them are cutting jobs and closing factories. The belief of pharmaceutical and the health-care industry immunity to economic turndown is now on hold, and so is the hope for new medicine breakthrough.

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