Biotech industry insiders expect the public financing window toremain open this year. But when all is said and done, there'snot enough money available to fund every company's needs.
One question companies have to ask is how long the marketwill have an appetite for biotech stocks.
"I'm staggered that the window is still open," said Alan Timms,president of Glycomed Inc. "We seem to have confounded allthe do's and don'ts of market windows this year. Investors atsome point will say, 'We've made our bets.'"
Alan Walton, general partner at Oxford Partners, expects theinitial public offerings market to have its ups and downs thisyear.
"I think we're going to have a tough time for a month or sowhile people see the state of the economy, but the IPO marketwill come back between February and April or May or so afterCongress takes steps to boost the economy," Walton said. "Thenapprehension over the November elections and rising interestrates will finish it."
The number of companies looking for financing also maydecline, at least in the short term.
"The first quarter is historically the most productive for raisingmoney, and a lot of business is queued up waiting forfinancing," said Cowen & Co. analyst David Stone. "But I wouldbe surprised if the amount of financing activity doesn't taperoff somewhat. We've got to be running out of privatecompanies that are ready to come forward, and companies thatare already public have a lot of cash."
But no one is ready to say point blank that biotech companieswill raise less money this year than last, when IPOs raised $1.1billion and secondary offerings raked in $2.1 billion.
"A lot of companies have enough money for the next five years,and I don't know how many boards will want to keep dilutingtheir stock," said Lindsay Rosenwald, chairman of The CastleGroup. "But there will be new ones -- some will be earlier-stagecompanies doing deals at lower valuations. We could see nearlythe same amount raised this year as last."
Adds analyst Sarah Gordon of Amerindo Investment AdvisorsInc., "I thought all the top-tier companies raised enough in1990, but they all raised money again in 1991. If the windowis open, companies will avail themselves."
Almost as many companies could go public this year as the 37that completed IPOs in 1991.
"At least another 100 companies are seriously talking withinvestment bankers right now, but they won't all get it done,"said Ken Lee, national director of Ernst & Young's Life SciencesIndustry Services. "There's not that much money, and manycompanies are going public before they should."
"In September, I estimated there were about 50 venturecapital-backed companies of the caliber to go public," saidWalton. "Since then, about eight or 10 have gone public, sothere are about 40 left."
Sam Colella, a partner at Institutional Venture Partners, saidthere could be another 25 to 40 biotech IPOs this year. "But Idon't think it's going to be a wide-open window," he said.
One reason, said Colella, is that underwriters don't have enoughanalysts to support a lot of new public companies.
In fact, said Brook Byers, general partner at Kleiner, Perkins,Caufield & Byers, underwriters are assuming a new importanceas the arbiter of when companies go public.
"In the past, the board of a company was the gatekeeper ondeciding when to go public," Byers said. "In 1991, theunderwriters became the gatekeepers because there were somany companies that wanted to go public."
Whether or not the public window remains wide open, it's clearthat at some point there's not enough money to go around.
To illustrate, Smith Barney analyst Denise Gilbert takes the 24"third-tier" companies from her list and assumes they eachneed one product on the market to be profitable. Conventionalwisdom says it takes $100 million to $200 million per productto reach the market.
"Just to do that," she said, "they would have to raise a total of$6 billion over the next five to seven years. In the 10-yearhistory of the industry, companies have raised a total of $5.5billion. So they're going to be fighting to raise capital."
The numbers are even more staggering if one looks at the 400to 500 biotech companies, most still private, that have beenformed to develop human therapeutics, said Ken Lee. "Even if itonly took $100 million to develop a therapeutic, they wouldstill need $40 billion to $50 billion."
Concludes Lee, "Too many companies have gotten funded, andthere hasn't been a major-league shakeout. If there weren'tpharmaceutical companies interested in strategic alliances, wewould see more bankruptcies."
He expects to see more combinations of biotech companies,more strategic alliances, and maybe even more acquisitions bymajor pharmaceutical companies.
-- Karen Bernstein BioWorld Staff
(c) 1997 American Health Consultants. All rights reserved.