Tom Giannone, a senior director with the Technology Enterprise Group at Cushman & Wakefield, an international commercial real estate firm with offices in Florham Park, does not think it’s too far a stretch to compare the state we are in right now to the Great Depression. While we have not hit Depression-era numbers, Giannone says we have gone beyond the basic type of economic sag that shows up once a decade or so. Most times a slow-down takes its toll on one or two industries and causes hiccups in others. This one is more like a tornado: Indiscriminate, broad, and powerful.
Still, even amid this observation, Giannone is especially nervous for biotech companies. An industry that relies heavily on — and quickly burns through — venture cash, biotech, is already facing the serious problem of where to get more fuel.
Giannone will moderate a panel of science and technology company financial officers, “Plan to Thrive in 2009 — Tips & Tricks for Tech CFOs,” on Wednesday, February 25, at 4:30 p.m. at Morgan Lewis, 502 Carnegie Center. Cost: $100. Visit www.njtc.org for more information.
Panelists include Bill Borton, a partner in Bordentown-based employee benefits firm the HeartStone Group; Baldeep Dua, CFO of Kirusa Inc., a Rhode Island-based firm specializing in voice technologies; Todd Marrazzo, CFO of online book rental company BookSwim; Robert Olanoff, CFO of San Diego-based communications company Systech International; and Brian Markley, managing director of the New York Metro region of SolomonEdwardsGroup.
Giannone has been in real estate for nearly 30 years. Originally an engineer, he earned his bachelor’s from Villanova in civil engineering, his master’s in environmental engineering from Rutgers, and his MBA from New York University. In the early 1980s he entered the commercial real estate world and, by chance, brokered a deal for Pharmacopeia (recently acquired by San Diego-based Ligand Pharmaceuticals) about 15 years ago. Since then he has been heavily involved with life sciences and biotech companies. He is also a founder of Cushman & Wakefield’s Global Life Sciences division, which was formed in 2007 to capitalize on the pharma market.
The numbers. In a typical recession, Giannone says, small companies in large industries suddenly find themselves strapped for cash, and the only way to get it is to either sell assets or sell the whole thing. As the economy worsens, he says, biotechs are struggling to maintain their operations amid rapidly dwindling sources of revenue.
There are 370 publicly traded biotech companies in this country. As of this week half have less than 12 months worth of cash to continue their businesses. A third don’t have enough cash to survive six months. And the numbers are increasing by 5 percent every month.
“These are not small companies,” Giannone says. “These are the big ones.”
Why? Unlike most businesses, particularly ones that operate on large budgets, biotechs burn through cash like coal. Venture funds and investments are quickly converted to dollars for research and development while the rest is used to cover administrative costs. Biotech companies do not work on a renewing revenue stream like retail, for example. Unless a drug or product moves out of research and into marketing, all the work being done at a biotech company is research, development, and testing.
The problem right now, Giannone says, is the credit crunch. After Wall Street imploded in September banks and lenders, flush or not, dramatically slowed their credit offers. In every sector lack of credit is choking the ability to grow business, but in biotech, Giannone says, it is choking the ability to simply do business.
What now? Without the ability to generate its own revenue, biotech is reliant on investors who are either unable to get venture money themselves or unwilling to open their wallets. What’s left for these companies now, Giannone says, is to raise it themselves, the only way they know how.
“We’re beginning to see companies selling their pipelines,” Giannone says. Research assets and drugs entering broader development are the first to be offered up to a savior with deep pockets. The next step, of course, is for the companies themselves to get up on the block. Big companies will likely get small-but-solid biotech firms for flea market prices, and the future of biotech will go the way of many industries before it — a handful of large companies controlling most of the assets, because they are the only ones who can afford it.
If, that is, they don’t get themselves added to the list that is growing by five percent every month.
Save the science. Regardless of who owns it, Giannone believes that the science and research of any given company will be bought, rather than left to fade into oblivion. What might prove problematic is where the science actually ends up. “You always hope the good research survives,” Giannone says. “I’ve seen companies go bankrupt — people buy the science.”
The question is, will the buyer keep developing something, especially if it is only somewhat promising? Giannone wonders how much research will end up languishing in the recesses of big pharma.
If there is an upswing to this, it is that the scientists themselves are not likely to lose their jobs. Yes, Pfizer recently laid off 300 of its scientists — a happening that has surprised many in the pharma and biotech fields — but that has so far proven to be an aberration. While rampant downsizing is cutting its swath through biopharma, most of the cuts are at the administrative and sales level, Giannone says. That isn’t good for administrative personnel or sales reps, obviously, but it at least signals to Giannone that the science and research is valuable enough not to get rid of those who advance it.
And speaking of Pfizer, its recent $68 billion acquisition of Wyeth is part of a move expected to see the loss of 20,000 jobs (of a combined total 129,500) by 2012. Most of these cuts, Giannone says, appear to be focused on sales and administrative positions, not scientists. “But we’ll see,” he says.
In the end, Giannone says, companies across the spectrum are facing the same question — how to prepare for the future when the future is so unpredictable. “You don’t know where you’ll be in six months, much less two years from now,” he says.