Recession Brings Butt Kick to Biotech

Sunday, Feb 1, 2009  |  Updated 7:12 AM PDT
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Recession Brings Butt Kick to Biotech

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Growth in California's biomedical industry has tapered as investors hit by the recession pull back from funding smaller companies, an industry-backed report released Thursday said.

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Growth in California's biomedical industry has tapered as investors hit by the recession pull back from funding smaller companies, an industry-backed report released Thursday said.

The California Healthcare Institute reported that biomedical businesses and research generated $74.5 billion in revenue in 2007 in California, up about 2 percent from 2006. Over the same period a year earlier, the industry grew by nearly 20 percent.

The bulk of those revenues were generated by large publicly traded companies like Genentech Inc., Amgen Inc. and Gilead Sciences Inc., said the report.

Smaller companies stayed afloat in 2007 thanks to another strong year of venture capital funding before the recession's full onslaught. But a dip in 2008 deals even before world financial markets plummeted foreshadowed the dwindling pool of cash available this year.

"Biotech, device and diagnostics companies have not escaped the carnage," the report said.

In 2007, California's medical device, diagnostics and biotech businesses brought in a nation-leading $4.3 billion in venture capital, up from $3.2 billion a year earlier. But the first three quarters of 2008 saw California companies ink only $3.1 billion in deals compared to $3.2 billion during the same months the previous year.

Despite the grim picture, the report's co-authors argue that strong worldwide demand for medical treatments and new cures will buoy the biomedical industry even in a recession.

"These biotech companies tend to prove that they're quite resilient," said Tracy Lefteroff of PriceWaterhouseCoopers, which compiled the report.

That resilience will be tested as investors turn away from the startups and emerging companies that often serve as the industry's engines of innovation in favor of larger, proven businesses.

According to the Biotechnology Industry Organization, a national trade group, more than 40 percent of small biotech companies have less than a year of cash on hand. More than 30 percent of small publicly traded companies have fewer than six months of cash, the organization said.

And companies cannot look to the stock market to bail them out. In 2007, 28 biotech companies completed initial public offerings of stock. In 2008, there was one biotech IPO.

The cash crunch could also hamper the ability of California companies to take advantage of discoveries generated by government aid. In 2007, the National Institutes of Health bestowed $3.2 billion on California's academic researchers, far more than any other state, the report said.

The state's 2,042 biomedical companies employed 271,000 workers in 2007, second only to the software industry, according to the report. Those workers earned an average salary of $75,000.

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