BioPerspectives

Dec 15, 2008

A Biotech Bailout?

  • Move over Big Three, Little Biotech is joining you in seeking federal assistance and may even succeed (where the Big Three failed). Biotechnology industry executives visited Congress on Wednesday to ask for a temporary change in the tax law that would let money-losing companies get cash from the government now in exchange for tax credits they would pledge not to take if they eventually become profitable.

    The change, if approved, could enable the industry to receive potentially hundreds of millions of dollars on the condition that the money would be used for research and development. The effort comes as many smaller biotechnology companies, particularly those trying to develop drugs, are facing cash shortages that are forcing them to dismiss workers, curtail research, and even file for bankruptcy protection or liquidation.

    Even in good economic times small companies struggle to raise money, so now it's obvious that everyone is going to struggle. With financial markets in turmoil, investors have become downright unwilling or more often simply unable to provide the infusions of cash, pushing many biotech companies to the brink.

    In seeking assistance, the industry is quick to distinguish itself from the automakers, banks, and other supplicants in Washington, portraying itself as a model of innovation and American competitiveness. Granted, that may be the only way they can secure some of the TARP funding for themselves, however I take exception to a statement made by Alan F. Eisenberg, an executive vice president of the Biotechnology Industry Organization (BIO): “This is not a question of our companies operating with what some perceive as a flawed business model. This is about our companies taking a decade to get a product on the market, and during that time they need to have investor capital, and that capital is not available.”

    The business model of biotech is far from proven and may in the long run be just as unfeasible as the automobile industry, and a comparison between the two is extremely lopsided. As an example, the chief executive of Genentech has estimated the industry as a whole has lost about $100 billion since the field’s inception in 1970s. Even as of last year, the American biotechnology industry as a whole was not profitable, although it was getting close, according to Ernst & Young.

    Don't get me wrong, I am trying to play devil's advocate —should the industry get funding? Absolutely! Should it come from TARP funds? Absolutely not.


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