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The aging population and the huge unmet needs are fueling the focus on biologics, according to a new report from PricewaterhouseCoopers (PwC).
The aging population and the huge unmet needs are fueling the focus on biologics, according to a new report from PricewaterhouseCoopers (PwC).A 60% drop in the NASDAQ Biotech Index from March 2008 to March 2009 has spurred a drop in the valuations of private biotech companies. These factors will likely result in an uptick in biotech M&A and alliance activity in 2009, according to PwC’s Biotech: Lifting Big Pharma’s Prospects with Biologics.
“Biotech startups are seen as important incubators of new drug development not only for traditional pharmaceutical companies but increasingly for large biopharmaceuticals as well,” says Tracy T. Lefteroff, global managing partner of the venture capital practice at PwC.
Venture capitalists have recognized these opportunities by investing $2.7 billion into 245 human biotech deals in 2008, according to the MoneyTree Report from PwC and the National Venture Capital Assn., based on data provided by Thomson Reuters.
Investments in therapeutic monoclonal antibodies rose 34% in 2008 to $640 million in 46 deals, up from $477 million in 41 deals in 2007. The immune response effectors subsector also saw a jump in investments, capturing $494 million in 31 deals in 2008, up 90% from the $260 million invested in 17 deals in 2007.
“Biotech companies with biologic products-particularly those ready to enter Phase II clinical trials-are attractive acquisition candidates for large pharma companies intent on diversifying their portfolios, and to stem revenue shortfalls tied to patent expirations of blockbuster drugs,” Lefteroff says.
Cash-strapped biotech companies with promising platforms will need to rethink their exit strategies amidst the current poor IPO market and squeeze on credit and venture funding and become more open to forging partnerships or being acquired, according to Lefteroff.
An indicator of demand is reflected in the 20% of GDP going toward healthcare.
“In the current economic environment, raising funding is difficult,” he says. “Companies with cash that can use stock as a currently can identify and buy the assets they need at fairly attractive valuations. And, biotech startups will be attractive acquisition targets for larger pharmaceutical companies interested in diversifying their portfolios. We expect to see a significant increase in this sort of activity before the end of 2009.”
With the population continuing to age, there is a strong demand for therapies for diseases associated with aging, according to Lefteroff.
“There continues to be large unmet needs in the areas of cancer, diabetes, and Alzheimer’s, so, accordingly, these are areas with large growth potentials,” he says. “Companies developing monoclonal antibodies, particularly those focused toward cancer, have continued to be of interest to venture capitalists with four of the top 10 human biotech deals in 2008 focusing on this area. This should not be a surprise to any of the executives as they clearly understand developing drugs for humans is challenging.”