The Food and Drug Administration's plans to streamline drugapproval could fatten the bottom lines of biotech companiesand lessen their dependence on corporate partners.

"The reduced time will have significant implications for theway we capitalize these companies," said Richard Pops,president and chief executive officer of Alkermes Inc. ofCambridge, Mass. "One of the reasons we built these significantwar chests was to endure the review period. This could changethe whole burn rate scenario."

Biotech products typically take six to seven years to develop,said Cowen & Co. analyst David Stone. Speeding up the time tomarket can profoundly affect the valuation of its earningsstream. "If you save two years and assume a 25 percentdiscount rate, that translates to a 56 percent increase in value,"he said. Using a 40 percent discount for earlier stagecompanies, he said, translates to a 96 percent increase in value.

Lowering the amount of time and money required to developproducts "has to add significant real value to the productsbeing developed," said John Gill, vice president of the venturefund S.R. One Ltd. "This should make deals more attractive tofinance, whether it's through the public market, corporatepartners or venture capital. It's changing the economics of therisk."

It might enable companies to keep more of what they developto themselves, said Samuel Colella of Institutional VenturePartners. "This may reduce the amount of partnering or causesome partnering to be delayed until later in the cycle."

Shortening the time required for clinical trials might alsoencourage more entrepreneurs to enter the biotech business,Colella said.

The savings on drug development -- which could be about $60million for each drug that qualifies for accelerated approvaland $28.5 million for other drugs -- won't mean companies willneed to raise less money, Stone said. Instead, he predicted thatcompanies will try to do more with their dollars. Companiesalready have more opportunities than they have money topursue them, and this will enable companies to spread theirrisk, he added.

-- Karen Bernstein BioWorld Staff

(c) 1997 American Health Consultants. All rights reserved.