Biotech Forecast: Little Ventured, Little Gained | Local biotech companies are finding new ways to succeed as investor contributions waver
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Gateway Park in Worcester is trying to attract the right mix of companies.
Biotechnology and life science initiatives in Worcester and Central Massachusetts represent some of the few industries to remain mostly unaffected by the recent economic downfall.
While that may be good news for the here-and-now, local biotech executives are preparing for an immediate future that could pose a steady, uphill climb for companies seeking venture funding.
The most recent PricewaterhouseCoopers MoneyTree report revealed that the life sciences and medical devices sector saw a 10 percent increase in venture funding during the third quarter of this year, but the professional services firm also acknowledged that a dip in venture investing can be expected for the next several quarters. It is a sentiment echoed by many biotech executives in Massachusetts.
“We’re going to go through a period of dislocation,” said Thomas Newberry, vice president of corporate communications and government relations at GTC Biotherapeutics in Framingham.
Company mergers and acquisitions are growing more prevalent, according to Newberry, and smaller companies are disappearing because “stock prices are staying put at best, or dropping with the news of success.”
Small companies are beginning to implement new capital-raising techniques by following a partner-funded model or by selling entire programs to larger companies.
“The challenge with that,” Newberry said, “is now you have the money, but you don’t have much of a pipeline. So what are you going to spend that money on?”
At both the federal and state levels, Newberry has seen some recognition that the traditional model of how companies are financed isn’t working, but he also acknowledged that the situation is not likely to reverse itself any time soon.
Bad Medicine
“Investors aren’t showing interest in the long-term funding and risk associated with it,” said Newberry, noting that if a similar mindset were in place during the early 1980s, Microsoft, as we know it today, never would have existed.
As it stands, Newberry believes this brief period of investor reluctance is already affecting the future of the health care industry.
“It discourages the growth of new companies that are introducing new medicines,” he said. “In the past, investors rewarded step-by-step success,” he continued. “They don’t seem to be rewarding that right now.”
Glyco Solutions in Worcester provides an example of the type of small, biotech business that is both benefiting and hurting from current economic trends.
“We’re having a fantastic year,” said Elizabeth Higgins, the company’s 45-year-old founder and CEO. “Right now, we’ve seen no impact at all [from the struggling economy]. We don’t raise funds other than equipment financing, which we did earlier in the year with no trouble at all.”
Higgins entered the biotech industry in 1991 and worked as a staff scientist at Genzyme until 2001, when she started Glyco Solutions, where she continues the type of work she was doing at Genzyme—the testing of sugars—only now as a contract research organization (CRO).
With larger companies looking to outsource projects as a way of cutting costs, businesses like Glyco Solutions are thriving, but Higgins is leery that the trend won’t last and, as a result, she often finds herself working with a smaller staff than she would like.
“I try very hard not to take on more people that I don’t really need in anticipation of it,” she said.
While some observers see small signs for concern within the biotechnology industry, others, including David Forsberg, president of the Worcester Business Development Corp.(WBDC), see only great things for the industry’s future.
“It’s become one of the more important parts of our economy in Central Massachusetts,” he said. “There’s been a steady history of biotech growth and stability since the first biotech park.”
That first park, the Massachusetts Biotechnology Park in Worcester, was created in 1985, but the WBDC’s newest project, Gateway Park, a 124,000-square-foot complex on Prescott Street, represents the evolution of biotechnology here in the greater-Worcester area.
“We think that there’s great potential,” Forsberg said of the project that will devote between 45 and 65 percent of its space to the life sciences, including WPI’s Bioengineering Institute, “but there’s a tricky task to assemble the mix of companies that we want.”
Despite the challenges, which as Forsberg explained, include trying to determine which small companies are credit-worthy, he still sees the industry as the future for Worcester and Central Massachusetts. “We think that it will continue to be, even in a tough economy, a great part of the greater Worcester economy.”
Burn Rate
Forsberg isn’t the only local executive with significant optimism for the future.
“The big trends right now are these little, boutique companies that are doing a lot of contract research with biotech and pharmaceutical companies,” said Kevin O’Sullivan, president and CEO at Massachusetts Biomedical Initiatives. “I think that’s good for both sides. It’s going to conserve money and save time. This trend is something that I think is going to bode well for the industry over the next couple of years.”
If for no other reason, O’Sullivan sees the shift in business practices as a positive move simply for its rejuvenating effect on an industry that historically operated on a spend-first mentality.
“For me, the silver lining is people are becoming smarter and more conservative,” he said. “For a long time, this industry reflected society as a whole: We burned through a lot of cash. But thriftiness is the word right now in life sciences. You have to make sure that you keep your burn rate down.”
“Those companies that are still budding and coming along are bringing their own money to the table,” said O’Sullivan, acknowledging that some business owners are going so far as to refinance their homes. “Their rate of survival is far greater because they have their own skin in the game. They’re going to work that much harder to see success.”
And the way O’Sullivan sees it, Massachusetts is poised for great things, even with an uncertain economy in place. “The economy is built in confidence,” he said, “and I’m much more confident being positioned here than somewhere else around the country.”
Shaun Tolson is a freelance writer based in Ashburnham.
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