Massachusetts Bio Industry Perseveres and Evolves Despite Macro-level Economic Environment

Disease foundations surfacing as buffer during downturn

Speak with Bob Coughlin, president of the Massachusetts Biotechnology Council (MassBio), and you might think that we are in the middle of an economic boom rather than one of the worst economic spirals since the great depression. But what would you expect from the public face of the biopharmaceutical sector in Massachusetts during an unexpected and fast arriving rough patch? His enthusiasm may be as much about past success as it is trying to shape the future as MassBio is arguably on the tail end a great run, and entering a time of uncertainty.

MassBio’s successes over the past 24 months have included: explosive growth in the number of small and large biopharmaceutical companies calling Massachusetts home; creation of jobs and prosperity in not only well-known MIT/Harvard backed Cambridge, but also newer hot spots like Lexington, Waltham, Woburn and Worcester; 26% annual growth of the biotechnology industry since 2001 with a 12% annual growth rate in employment; the 2008 passing of an aggressive $1B Life Sciences Initiative in Massachusetts; nearly 2,000 ongoing clinical trials in Massachusetts (top 10 nationwide); entrance of major global pharmaceutical companies into the market like Novartis, Genzyme, Bristol Myers Squibb, Shire and others.

Enthusiasm though was mixed at the Council’s recent 10th Annual Investors Forum held in Boston on December 9. According to MassBio, more than 360 people attended the event, up nearly 30% since last, but in walking the floor and attending the presentations, it was clear that attendees were feeling uneasy about the future. Several people commented that the number of attendees and company presentations was visibly lower than 2007, which was largely a record year for the industry. Many of the individual company presentations, a vehicle used by biopharmaceutical companies looking to impress potential investors, were sparsely populated and several included more CRO representatives than investors.

Surely, some unease about the market is natural given the major indicators—the absolute lack of IPOs in 2008 and the tightening credit market. What is interesting though, is that the industry is evolving in an effort to keep the wheels moving forward even as traditional funding sources dry up and investors become more risk averse. Companies that once sought funding from traditional sources like venture capital firms and investment banks are now diversifying their funding sources and targeting non-profit organizations like disease foundations. MassBio has taken notice and for the first time, began inviting such organizations to the investors’ forum, hoping for 10 to 12 participants according to Coughlin, but ultimately getting 22 to take part in the meeting this year.

These foundations have embraced this "venture philanthropy" opportunity as a means of becoming more actively involved in the development of new treatments specific to their cause, please constituents and supporters, and also provide better financial returns for their organization for future investments. For small biopharmaceutical companies, these organizations have emerged as welcome support at a time when other investors are turning away. The investments made by these organizations can range from $75K to several million dollars. Sample investment totals of some well-known organizations include, more than $350M to-date for the Cystic Fibrosis Foundation, more than $1B for the Juvenile Diabetes Research Foundation (JDRF), over $128M by the Michael J Fox Foundation and more than $600M to-date for the Leukemia and Lymphoma Society (LLS).

Traditionally, most investment dollars were directed at the academic community, but several of the organizations including the JDRF and LLS have begun moving more funds into the private sector, hoping for better returns or results from their investments. While the investment goals and expectations for each disease foundation can differ widely, there are some similarities to the types of relationships the foundations forge with the companies they are funding. These include: agreement lengths of 1 to 3 years; agreements which are milestone driven; agreements requiring return payments at regular intervals; and intellectual property rights for the particular compound being funded—allowing for future licensing or marketing revenue for the organization. Some, like the LLS ask that returns on investment go into patient assistance programs to help them afford therapies and learn about clinical research trials.

Several of the disease foundations at the meeting were reporting an increase in applications for funding. As a result, they have had to become more selective in the review of companies and compounds they might support. Also, more reflective of the times, many reported increasing demand from constituents to get better returns or results from investment dollars. These market realities and demands are also the reasons why many disease foundations have begun balancing their portfolios better. Nonetheless, a commitment from a well-known disease foundation can act as a "Good Housekeeping Seal of Approval" according to Robert J. Beall, President and CEO of the Cystic Fibrosis Foundation and speaker at the conference. Another speaker at the meeting, Paul Burn, SVP, Research and Development for JDRF agreed, stating "once disease foundations have invested, biotech's often begin seeing more interest from venture capital companies that were previously not interested." Give Bob Coughlin and MassBio credit for helping to create a bridge during a rocky period after so much past success.

Dan McDonald
Vice President, Business Strategy
Excel Life Sciences
Reporting from MassBio for Applied Clinical Trials