Public Markets Rally in March
The life science public markets held up well in the first quarter of 2009 despite a severe correction in February exacerbated by fear of Medicare reimbursement cuts and the Obama administration healthcare initiatives.
The financing window for start-ups and small cap biotechs will be virtually closed for the next 12 months, however. Of course, creative deals will be cut and alternative financing routes will be found such as angels, government grants, the Stimulus Package, and corporate partnering. As the industry restructures the stage will be set for a rebound. The data indicates financing should still be available to medtech and healthcare service companies with emerging growth in revenue or positive cash flow.
Near-term events such as clinical conferences and product milestones may provide an impetus for rallies and funding through PIPES, but the bear market is intact until we view the fourth quarter of 2009 landscape. Investors have short memories so any positive developments should spark the markets; supposedly, there is a lot of money on the sidelines (but where?).
Over the years healthcare investing has always found a way to re-create itself and, even as details of a national healthcare plan emerge there will be new opportunities. Corporate and NIH R&D investments combined with total healthcare spending provide the core engine for creation of compelling new products and services. For example, the aging population will require home healthcare services in the near term and related diseases such as cancer and Alzheimer’s disease require new cost-effective drugs in the longer term.
Greater regulation of security markets and banks may actually be a positive development for healthcare investments as we go back to funding real companies and technologies rather than leveraging money to make money through financial engineering and derivatives.
The big issue remaining, once the credit crunch subsides, is whether there will be fundamental shifts in the business model away from biopharmaceuticals to tools, diagnostics, and devices.