(© Tomasz Walenta)
Rescues Around The World
By most accounts the countdown clock to biotech bankruptcy keeps ticking, drawing companies worldwide closer to the day when they run out of cash and shut down or become acquired at liquidation rates. Depending on the country, a critical mass of meltdowns might be only a few months away.
Some favor the Darwinian approach. "The economic crisis will help to make the biotech industry more sustainable and more robust long-term because the weak companies won’t survive," says Jürg Zürcher, a biotech expert at Ernst & Young in Switzerland. On the other hand, many governments, industry executives and private investors are not as sanguine and are crafting plans to keep companies afloat long enough to survive.
"You are trying to a get a greater number of good companies through this period, so they come out the other side of the recession viable and able to flourish in the new market," says Roger Wyse, managing director of Burrill & Co., the San Francisco-based venture-capital and merchant-banking firm.
Government Giving
This past January the government of Norway submitted to Parliament a £2 billion ($2.9 billion) economic-stimulus package, about £302 million ($432 million) of which would be earmarked for biotech companies. Many of Norway’s biotechs need that help, because half of them are projected to run out of cash in nine to 16 months. This investment in biotech would allow Innovation Norway, the country’s main industrial development agency, to sponsor a range of biotech benefits, such as tripling the loans available to biotech and information-technology companies, providing £7 million ($10 million) in research-and-development contracts and allowing up to £580,000 ($830,000) in tax breaks.
"At this point, these seem to be the necessary measures to bring the Norwegian biotech companies through the financial crisis," says Bjarte Reve, chief executive of the Oslo Cancer Cluster, an industry research association representing 25 biotech companies focusing on oncology products.
India also plans to buy new hope for its biotechs. In November 2008, India’s government approved a 3.5 billion rupee ($72 million) Biotechnology Industry Partnership Program to fund projects in a range of areas, including biomarkers, stem cells and others. This program will also provide 100 percent grant-in-aid support to clinical trials involving biotech-based products—if they include some innovation from India. Once commercialized, 3 to 7 percent of net product sales would be returned to the government as royalties.
Government giving has also been proposed—although not acted on—in the United Kingdom, where one-quarter of the biotech companies could go bankrupt by year’s end. One U.K. proposal, endorsed last year by 22 biotech-industry executives and submitted to the government in December 2008, seeks at least £1 billion ($1.4 billion) in new government spending through the creation of two public–private biomedical funds. One is a £500 million ($715 million) National Biomedical Consolidation Fund that, with matching private money, would encourage less-successful companies to consolidate into higher-quality biotechs. A second, £500 million National Super Growth Biomedical Fund with matching private funds would provide loans to a select handful of high growth–potential companies. "The logic is that government should put back some of the money it has taken from taxpayers to where there is both a need and good grounds for spending, such as in healthcare, which is important to the nation’s health," says Chris Collins, chief executive of Nomura Code Securities investment bank in London who endorsed the proposals.
Cranking Up Tax Cuts
Other countries want to nurture the biotech industry, rather than simply buying it out of trouble, even when the trouble is severe. In Canada, for example, more than 25 percent of its biotech companies had less than six months cash remaining at the end of last year. "These firms are not suffering from structural problems or bad business decisions, they simply need investments," says Peter Brenders, president and chief executive of BIOTECanada, the country’s trade association.
BIOTECanada asked the government to take the following measures: allow small companies to receive a one-time credit for tax losses if the money is re-invested in research and development; create a capital-gains exemption for new science and technology research investments; and make more companies eligible for refundable scientific-research and experimental-development tax credits. Nonetheless, Canada’s $30 billion (U.S.$24.2 billion) stimulus budget for Fiscal 2009, released January 27, did not address those issues.
In the United States, where 30 percent of the biotech companies have less than six months cash on hand, the Biotechnology Industry Organization (BIO) lobbied—unsuccessfully—for Congress to include biotech tax credits and incentives in the $787 billion stimulus package, which passed in February.
"We’re going to continue to pursue it," says Jim Greenwood, BIO president and chief executive. "We will be looking for other legislative vehicles to get it enacted into law, which might be subsequent stimulus bills or a future comprehensive tax package."
Like Canada, the U.S. industry is not looking for a bailout. Rather, BIO seeks legislation to allow companies to accelerate net operating losses and to take research and development tax credits as a deduction against future earnings, but at a discount from what they would otherwise have been. BIO also wants Congress to at least suspend rules that limit the amount of net operating losses that may be taken in successive rounds of equity financings or following company mergers. And BIO would like capital-gains taxes on invested funds to be reduced or even eliminated to encourage investments in biotech-related funds.
"It’s sad, that for any company that has to go out of business or shelve their research because of all this, we may or may not see those projects continue in the future," Greenwood says. "So it’s not only the lives of the companies that are on the line, it’s the lives of patients."
Similar to stimulus packages in place for other industries, all the above biotech initiatives aim to prime the pump. The question is: Can it be done in time?
