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Mar 15, 2009 (Vol. 29, No. 6)

Madoff Matters, But Larger Issues Loom

Ponzi Schemer Represents Just a Piece of an Extremely Sour Financial Funding Pie

  • Larger Picture

    Abi Barrow, director of the Massachusetts Technology Transfer Center, concurs. The Madoff case, she says, is “an exaggerated part of the bigger policy picture. The case won’t hit start-ups so much,” but will decrease the number of research initiatives universities can undertake. The long-term effects of the current financial contraction may be to refocus research on less risky challenges. “It will take 10 to 20 years to know the outcome,” she says.

    The Madoff scandal is of minor consequence in the larger picture, representing only one challenge to a global financial environment that has been rocked by declining stock prices, additional scandals, and malaise. “Investors of all types are being hit by a liquidity crisis,” Dr. Pathak says. For example, “it’s not uncommon for me to bump into analysts coming out of retirement who are looking at accepting board positions to earn money.”

    Boston attorney Jeffrey Quillen, partner with Foley Hoag, reports that clients’ board members, speaking at year-end board meetings, typically advised their executives to “expect the worst.”

    “The next couple of years will be hard,” predicts Fred Ledley, M.D., professor of biology and medicine, and chairman of the natural and applied sciences department at Boston’s Bentley University.

    “It’s tough to find a bright spot right now,” agrees Glen Giovannetti, partner and global biotechnology practice leader at Ernst & Young. “If a pinch is being felt in the U.S., it’s almost worse in other countries.”

    Globally, the number of restructurings is increasing month by month, through projects that are being either delayed or shelved. Consequently, workforces are being cut.

    Raising funding is difficult. Nicholas Landekic, CEO of PolyMedix, says that for early-stage microcap biotech companies, it’s virtually impossible. In the past 16 months, he has made 485 presentations and raised nearly $20 million. “That’s enough to last until mid-2010,” he says.

    Landekic is continuing to fundraise because, as he points out, “It’s easier to get financing when you have money in the bank. If you have less than six months’ capital, it’s virtually impossible to attract financing.”

    Companies “need to be flexible and opportunistic in raising financing,” Landekic emphasizes. NIH grants can help with basic research, and SBIR funding is slow with low initial outlays, although secondary levels of funding can be meaningful. Research contracts are another opportunity, but success depends heavily on who you know, he says.

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