William Looney: Forward-looking forecasts like the Campbell Alliance Dealmakers Intentions Survey indicate that the market for licensing
and M&A investment is beginning to improve after a slowdown in 2009. What factors are driving this trend? And, given the importance
of long lead times in this industry - is a recovery sustainable?
Dennis Purcell, Aisling Capital: Overall, the sector weathered the recession relatively well. Predictions in early 2009 that up to two-thirds
of small biotechs would end up insolvent by year-end proved untrue. Companies did a remarkable job in conserving cash through
the financing drought, and as a result the runway for future growth has been extended. However, larger structural challenges
remain in play. We need a revival in the equity markets, and the venture capital community has to come back to the table,
especially as the hedge funds that helped support biotech in the past have mainly dropped out. The key issue for 2010 is that
biotech companies are going to have to return to the financing arena; if the market doesn't respond, we face the prospect
of a "double dip"—another round of winnowing that will expose all but the most promising players to a cash crunch. This will
negatively impact the sector overall, and lead to fewer opportunities for productive collaborations.
Ben Bonifant, Campbell Alliance: Our survey shows that the volume of deals picked up significantly in the last quarter of 2009, and that
momentum is extending into this year as well. The impact of recession and the reluctance to lend has resulted in a more selective
approach, however, with the greatest optimism centered on the potential for transactions around the in-licensing of products
in Phase II of the development cycle. Conversely, we are seeing reluctance to engage in riskier transactions involving Phase
III products, where the cost of failure is higher. Overall, I'd say the theme for 2010 is a flight to quality, at a stage
where the value proposition to the payer community can still be shaped, involving therapeutic classes—like oncology and CNS—that
serve an unmet medical need.
Wael Fayad, Forest Labs: The patent cliff facing the industry intensifies the search for new products to fill the gap, and thus we expect
an upswing in licensing and M&A deals this year. Deal activity and value will follow the highest quality assets, not necessarily
those only in late-stage development. Companies are looking for more certainty. To assure that, you need to spread the risks
linked to the time and cost of obtaining market authorization across more assets that you license or acquire after they have
been sufficiently "de-risked." This can be an extremely cost-effective way to build a pipeline.
Mary Tanner, Peter J. Solomon Co.: I'd describe the financial landscape as "bipolar." We have to reconcile the desire for recovery with
the hard fact that the real cost of capital is often going to be higher than the potential rate of return on your investment.
And most of the Big Pharma stocks are still trading at historic lows. I am not convinced that an upturn in dealmaking is sustainable
until we have some normalization of the financial landscape, as it is the cost of money and the poor measurability of risks
to investors that really drives the calculation around opportunity.
Barbara Ryan, Deutsche Bank: Deal activity has to continue as a consequence of the move by Big Pharma to externalize the traditional R&D
function. This is an industry that on its own has a better than 50 percent failure rate for compounds in Phase III. The big
companies with cash have to look farther afield—the challenge is sifting and finding that strong Phase III licensing candidate,
as pickings are slim everywhere right now.