Biotech officials see growing shakeout

May 15, 1993|By Liz Bowie | Liz Bowie,Staff Writer

As the availability of capital for biotechnology companies shrinks this year, the number of mergers, joint ventures and outright failures in the industry will increase, according to industry executives at this week's Health Care Seminar held by Alex. Brown & Sons Inc.

But although venture capitalists said the expected lack of money for private and public financings could be catastrophic for some companies, others in attendance said there remained plenty of cash available for good companies and good ideas.

As one investment banker at the conference in Baltimore said: "It used to be that if it had 'bio' in the name, they threw money at you. Today, they ask you what you do."

There are 1,300 biotech companies in the nation, hundreds that have been formed in the past several years, but relatively few with products. So as available capital shrinks, the competition for it intensifies.

"There is a very significant need for capital to fund life-sciences companies," said Charles L. Dimmler III, of Hambro International Equity Partners of New York. "I think the market is certainly going to do its work" in weeding out the industry.

Some industry observers went further, saying that given the enormous return that can be had by finding, for example, the next Genentech, money will never completely dry up.

"We are dedicated to finding the needle in the haystack," said John May, a managing partner in Calvert Social Ventures, who believes that investors are becoming more knowledgeable about the industry.

But little doubt remains that investors have been sobered by the events of the past year.

In the mid-1980s, institutional investors, like pension funds and insurance companies, were willing to funnel money to health care and biotech companies through venture capitalists. But those large investors have seen little return on their money and have pulled back.

In addition, the market for biotech stocks has recently been shaken by bad news. Several companies, including Synergen Inc. and Centocor Inc., were believed to have blockbuster drugs on the horizon but turned out not to.

With an expected lack of capital, companies would be forced to combine their resources -- both scientific and financial -- to advance the commercial development of products, Mr. Dimmler

said.

Companies that were based on only one bright idea and a few million dollars would be forced to merge, said Kathryn Lindquist, president of InterCommerce Corp. of Baltimore, which brokers partnerships between U.S. and foreign companies.

In addition, venture capitalists said, many other biotech companies would need to form alliances with major pharmaceutical companies to get their products manufactured and marketed.

"To me, it makes a tremendous amount of business sense," Mr. Dimmler said.

"It will be survival of the fittest," Ms. Lindquist said.

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