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Pharma Financial Squeeze Bodes Ill for Genomics

SAN FRANCISCO, June 14 - 'Caution: Tougher Times Ahead' may be an apt sign for biotech in general and genomics in particular, according to a panel of leading venture capitalists.


Brian Atwood, managing director of Sand Hill Road venture capital firm Versant Ventures, predicted that over the next three to four years financial pressures may force pharma companies to put a cap on spending, which would mean less money for deals with genomic companies.


"It could bode for dark times for biotech" if pharma continues to lose the confidence, and thus valuation, of Wall Street, Atwood told GenomeWeb after a panel discussion here at the IBF Venture Capital Investing conference earlier this week.


The market malaise for pharma, brought on by expiring patents, barren pipelines, and a wary Wall Street, will affect not only what the companies may be willing to pay for biotech deals but also how many biotech-start ups will be conceived.


"We're coming off a huge bull market of biotech," said Atwood. "People were getting excited, [and] you saw a lot of start-up activity. There's less start-ups now, less unsolicited business plans coming in."


Technology duds are easy to spot in the eyes of VC types.


Bioinformatics as a business model is "cold right now, a non-starter," said Atwood. "You can't make any money."


Then there's pharmacogenomics. "Using genetic and genomic information to guide the use of drugs is a lot harder than people thought," said Atwood.


And don't expect a call back from a VC if you have a sequencing project to finance. "For awhile we were getting a lot of business plans aimed at the genome of the dog or livestock," said Atwood. "It's not interesting economics; who's going to pay for it?"


Diagnostic technologies are also out of favor. A diagnostics proposal might have great technology but it is not a viable business if it doesn't do anything clinically, said Mark Wan, general partner of Three Arch Partners in Portola Valley, Calif. You may be able to "get it to bedside, [but] does it match up with an impact in medicine?"


Atwood also said institutions and government bureaucracies have layers of regulations that create barriers to a product's profitability. The rules include who can get reimbursed for testing, what tests are appropriate for what people, and which health-care workers are authorized to perform the diagnostics.


"Look at mammography," said Wan. "We're still arguing about it today."


Still, a few bright spots remain for genomics, and optimists cry that a paucity of new products only makes genomics tools more appealing: 'How else will pharma fatten up its pipelines,' they ask?


Chemigenomics, protein-on-a-chip technologies, and in the broad sense nanotechnology, for example, have a little more padding in the current market, according to Atwood.


And systems biology, said Dominick Colangelo, managing director of Eli Lilly's Lilly Venture Funds in Indianapolis. But he admits the approach still has a way to go to impact drug development. "Systems biology is still only one cell, and disease is multifactional, but it is still of interest to us," he said.

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