2010 opens with a sense of optimism ahead a transition to a post-crisis era following a mixed year for the Israeli biomedical industry. There are five major trends in the biotechnology industry for 2010.
1. Capital is back, but there is less of it.
The year from late 2008 through late 2009 was mainly characterized by uncertainty. Consequently, investment institutions did not transfer money to venture capital funds, which feared to spend what they already had and kept the money for their current portfolio companies. Financing rounds at the same or lower values than previous rounds were widespread.
In 2010, wallets are expected to open, and the first signs have already seen in other countries in the past few months. Financial institutions have to invest in something, and venture capital has actually not disappointed of late.
Venture capital funds also have to invest in new companies in order to revive the dream; after all, it the funds' raison d'etre. It is doubtful if the funds will be able to raise new capital quickly, but at least they will funds previously committed.
However, the level of investment of 2007, the best year in the history of biomedical investment, is unlikely to be repeated.
The appetite for biomedical investment is also affected by normal macroeconomic conditions, not just those related to crises, such as lengthy development periods, mergers among potential buyers of portfolio companies, and the ongoing absence of a primary market for IPOs.
The Nasdaq revival
After a prolonged drought on the Nasdaq primary market, IPOs resumed during the fourth quarter, including offerings by some fairly new biomedical companies. A large number of companies have published prospectuses, and are now waiting for the right signals from the financial market.
Experts assert that 2010 will be better than 2009, but that's not hard. There was not a single IPO by a biomedical company between September 2008 and September 2009.
The Tel Aviv Stock Exchange (TASE) also has a number of pending prospectuses for IPOs. Only one biomedical company has held an IPO since the start of the crisis: D-Pharm Ltd. (TASE: DPRM), in August. The drug development company held its IPO at a company value of $30 million before money, a low value for a company undergoing Phase III clinical trials. The share has since soared to give a current market cap of NIS 553 million.
Although the market is interested in IPOs at low prices by potentially fantastic biomedical companies, it is not certain that there will be any such offerings.
3. TASE moment of truth
No young TASE-listed biomedical company went out of business in 2009, although two turned into stock market shells: Topspin Medical Inc. (TASE:TOPMD) and Elutex Ltd. (TASE:ELTX), and neither case was directly related to the economic crisis.
The crisis crowded and strangled many young TASE-listed biomedical companies. In the past two quarters, there were a range of offerings based on shelf prospectuses, as well as rights offerings. Currently, almost all the companies have the wherewithal to survive through the end of 2010. The exceptions are TRD Instrum Ltd. (TASE:TRD), and Intercure Ltd. (TASE:INCR), which will have to offer plans for raising additional capital.
Young TASE-listed biomedical companies will face an interesting year, especially companies with negligible sales and heavy losses. They managed to raise capital over the past year and to survive, perhaps in the hope that the end of the crisis will solve their problems. If they cannot prove themselves in a normal year, they probably won't get another chance.
4. More exits
After two waves of exits in December 2008 and December 2009, there is no reason for mergers and acquisitions by large and mid-sized pharmaceutical and medical equipment companies to stop. The return of the IPO alternative may even raise prices a bit, albeit Israeli exits are already at good prices.
During 2010, companies such as Pfizer Inc. (NYSE: PFE; LSE: PRZ), Roche AG (SWX: RO), and Merck Inc. (NYSE: MRK) will continue to digest their acquisitions of Wyeth, Genentech, and Schering Plough, respectively. However, huge acquisitions won't prevent these giants from making smaller buys; they have deep enough pockets.
The question will be how many of the projects acquired by the large companies will be able to be brought to advanced clinical trials, in which the big money is invested. The ability to move forward will determine the milestone payments that the Israeli companies will get.
5. Waiting for the biomed fund
In March 2010, the winners of the government biomed fund will be announced. The optimistic scenario holds that there will be three winners, each of which will manage a $100 million fund.
The introduction of such a large amount of money at one shot could set off shockwaves in the industry, especially if most of the money goes to pharmaceutical and biotechnology companies, as the tender requires. Such inflation could raise company values and might encourage the founding of new start-ups which otherwise would not exist.
The question is whether this money will succeed at the funds' primary goal, which is to support late-stage companies by providing an alternative to external deals at low prices. This remains to be seen.
Published by Globes [online], Israel business news - www.globes-online.com - on December 24, 2009
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