NEW YORK, April 16 - The bearish winds on Wall street have blown shut the doors to the capital markets, which means genomics companies will have to make do -- or perish -- with the funds they have raised so far, buy-side fund managers said Monday.
“Investors have gotten a little bit disillusioned about the near-term prospects of the genomics companies,” said Sven Borho, a general partner at OrbiMed Advisors in New York. “The financing window is clearly shut closed, and none of the genomics tools providers is going to be able to raise cash in this environment. Companies who are running low in cash will have trouble refinancing themselves, and we’re probably going to see M&A.”
Borho, whose firm manages the Eaton Vance Worldwide Health Sciences Fund, said he thought any publicly traded company with less than $70 million in the bank is “in trouble.”
The Health Sciences Fund had invested 2.6 percent of its portfolio, or $4.3 million in Affymetrix, and $2.2 million, or 1.4 percent of its holdings in Pharmacopeia, as of March last year, the last date for which figures are available. Borho said his fund had since divested itself of its holding in Affymetrix and reduced its stake in Pharmacopeia. The fund also has stakes in Celera, Caliper, and Incyte, but Borho declined to reveal the size of those positions.
While smaller companies may get eaten, larger companies with low burn rates and higher capitalizations, and those that are likely to turn profitable in the near-term, don’t have much to worry about in the near future.
“Companies that bankrolled themselves for the next two or three years without having to go back to the public market are in pretty good shape,” said Alidiad Mireskandari, manager of the recently launched Monument Genomics Fund. “There is enough money to feed these guys until the market opens up again.”
On one particularly bright note, some fund managers went so far as to say that publicly-traded genomics companies may in fact benefit now that the pool of firms going public has dried up. With fewer companies conducting initial public offerings, funds that are focused on investing in companies with smaller capitalizations will have a limited pool of stocks to pick from.
“The more companies that go public, the more competition there is for the same number of investor dollars,” said Timothy Bepler, manager of the Orbitex Health and Biotechnology Fund. “The fact that the number of biotech companies is not continuing upward does keep more investor dollars in existing companies."
Bepler’s fund invested $1.48 million or 1.8 percent of its portfolio in Orchid Biosciences, and $313,600, or 0.4 percent of its portfolio, in Ciphergen, as of last October 31, the last date for which figures were available.
When the IPO doors swing open again, there should be a number of companies that will be ready and waiting to sell their shares in the capital markets since venture capital is still available in the private financing arena, the fund managers said.
Venture funds are more informed about genomics overall and are, therefore, more willing to back these companies over the long term, said Mireskandari.
"I am not really worried about those genomics companies there in the earlier stages. The venture capital community is going to back these guys up until the IPO market opens up,” Mireskandari said.
But Bepler noted that valuations had come down in the private equity arena as well. This means companies that have not yet gone public may have to settle for a smaller pot of privately financed cash in the near-term, and scale back some of their grand plans if they can’t wait out the storm until the IPO market opens up.