Dealmaking for Growth: How Biotech Firms Can Avoid the Tragedy of "Boom and Bust"
"Biotech firms, once the darlings of the investment community, today find themselves between a rock and a hard place when it comes to accessing the resources necessary to grow."
Main conclusions:
- Of over 300 biotech companies, less than a dozen have truly succeeded in the last 12 years. The high failure rate has left investors leery, making it tougher than ever for biotechs to obtain funding and survive long enough to bring a product successfully to the market.
- Many biotechs are merging in the hope that their joint knowledge and financial resources can keep them afloat. However, few investors are likely to believe that two sinking vessels can become an agile battleship just by linking up.
- According to McKinsey, deals between pharmaceutical companies and biotechs can be mutually beneficial: biotech companies lack direct access to end customers, while pharma companies need the knowledge and technologies that biotechs provide. The key to success for biotechs then lies in the creation of balanced portfolios that are comprised of three types of licensing deals 1) Product deals 2) Pre-product deals 3) Information and technology deals (Read the full article, to find out about the advantages/drawbacks of each type of deal.)
- As these three types of deals have different cash flow profiles, all are needed to ensure a steady inflow of financial resources. Besides increasing the company's net present value, the perceived lower uncertainty of the business is directly rewarded by investors with higher stock prices.
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