Abstract
Biotech Markets Poised for Brisk Growth as Market Sentiments Improve
As the biotech industry stabilizes after the corporate scandals, clinical
trial blowups, bankruptcies, and dwindling cash flows of 2002, investors are
once again warming up to the high-potential biotech stocks. While the air of
caution lingers, biotech companies are slowly but surely becoming the top
priority of investors, displacing software companies from that much sought-after
position. However, biotech firms have to cope with the cyclical nature of
financing, often characterized by 'boom' and 'crash' periods. This dynamic
pattern compels them to raise short-term finances - private investments in
public equity (PIPE), debt offerings, equity line of credit, or bank loans - to
survive during 'lean' phases until they receive the next round of funding. Going
by the history of biotech funding, the current lull in the market is likely to
give way to a vibrant growth phase very soon.
This Frost & Sullivan research examines the availability of equity
funding for biotechnology globally, with a specific focus on the Asia Pacific
region. The study also provides a SWOT analysis of the market, innovative
funding strategies, and well thought-out recommendations.
Investors Prepared to Wait and Reap Benefits
Investors are now aware that biotech companies have a prolonged gestation
period and returns can only be reaped over a longer period of time. "Unlike
the dotcoms that promised a quick buck, biotech ventures are likely to take
nearly ten years to define drug targets, develop those drugs, and take them
through various phases of clinical trials," says the analyst. "It is
only after this period that the venture can go public, or the venture/drug be
acquired, and the benefits of investments can be realized."
On the other hand, biotech companies have begun to meet the high management
standards expected by the investment fraternity. The present quality of
management, which has managed to keep pace with scientific advancements is
reinstating investors' confidence and in turn, sprucing up biotech firms'
chances of getting funding.
Government Support and Proper Business Models can Attract Investors
The biotech industry has always been dollar-intensive and the lack of
commercialization is a key restraint to the growth of equity funding in the Asia
Pacific region. With increasing competition and long gestation periods,
companies need to be cash rich to sustain and pursue their business objectives.
"Countries that have been successful in biotechnology have always had
dynamic government support and well-laid out investment community that could
support the needs of an emerging industry," says the analyst.
"Companies having a combination of validated technologies, 'best-of-breed'
product/service offerings, creative yet proprietary business models, efficient
workforce, and proper financial structure are likely to attract investors'
attention."
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