Biotech Sector Faces M&a

The Age

Thursday April 10, 2008

Ari Sharp, Biotechnology Reporter

MERGERS and acquisitions in the biotechnology sector are likely as cash-starved companies feel the effect of the wider credit and capital market squeeze, a leading industry watcher said.

"It is crunch time for biotechs," said Tony Stephen, life sciences partner at PricewaterhouseCoopers. "Companies nearing the end of their capital raising cycle...will undoubtedly feel the effects of softening pricing.

"Alternatively, companies which have recently raised capital are in a much more sound position to buy a pipeline at a discounted price."

The comments came as PwC released its quarterly index of life sciences companies, showing that beyond the three major companies - Resmed, Cochlear and CSL - share prices dropped 29% for the first three months of the year, compared with the market-wide All Ordinaries, which fell 15.9%.

The poor state of the sharemarket has put biotech companies that are low on capital in a precarious position, with many struggling to raise funds and being forced to cut back on spending.

Companies have been reluctant to raise capital, with no initial public offerings for biotech companies in the first quarter of the year, and secondary financing down to $52 million, less than a third compared with the same time last year.

"One of the main messages from this quarter's results is that an appetite for acquisition still exists arguably at more realistic prices. It is a matter of determining which companies are at good value and worth acquiring," Mr Stephen said.

While consolidation in the biotech sector has long been suggested, the management of many smaller companies have been reluctant to relinquish control over their research.

"I think there's a few egos in the industry and getting companies to merge is always a bit of a problem," veteran industry watcher Martin Ashdown said.

But mergers and acquisitions will not help companies who are not progressing in their medical research, said Harry Karelis, managing director of Biotech Capital.

"You don't want to have a situation where you've got two or three rats all swimming to the same sinking ship. Just by merging doesn't mean you're going to save something that's not worth saving to begin with," he said.

? Drug developer NeuroDiscovery has announced its pill to combat neuropathic pain, NSL-043, has passed phase I testing in Britain. The result comes just days after Dr Iain Chessell took over as chief executive at the Perth-based company.

© 2008 The Age

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