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TRENDSPOTTER: Revolving IPO Door, Consolidation, and Some Cash Await Genomics Sector in 2002

Being the last TrendSpotter column of the year gives me the privilege of looking back on how our industry fared in 2001—not universally a pleasant task. It also gives me the opportunity to look at the road ahead, which also may be perilous in certain places.


The biotech space in 2001 saw a sharp drop in the tempo and level of funding, and the genomics sector saw the greatest downturn. There was a smattering of genomics financings but nothing near the pace and size of what we saw in 2000. A former colleague always said that Wall Street is a fashion business. Genomics happened not to be in style this year.


2001 also saw a reset in valuations—a polite way of saying that market capitalizations were cut dramatically. This did not just affect the publicly traded companies but also the private ones. As I have written in the past, the two markets move in lock step. Adjustments in market capitalizations can be healthy but when it occurs it is never pretty. But this appears to be behind us with many companies off of their all-time lows. Does this mean the worst is behind us?


We did see activity on the corporate-deal front. Genomics companies large and small married, partnered, and collaborated with biotech companies and Big Pharma. This activity served to validate the importance of genomics as a future driver of new therapeutic development. 


We also witnessed the continuing surge of gene-based diagnostics and a dramatic growth in gene-based forensics, particularly after Sept. 11.  We may also find some solace in knowing that this technology is helping to bring closure to hundreds if not thousands of families.


How will genomics fare in the New Year? If the end of 2001 is any indication, some financings will be completed in the first half of the New Year. There is a lot of money sitting on the sidelines waiting to go to work. I think investors will be looking to invest in those companies whose business models are being proven—for example, those with substantial products being developed will be key, less so the quality and size of corporate deals.


We will continue to see consolidation in our space. Big Pharma is mourning the loss of many of its cash cows and is desperate for new blockbusters and the means to bolster its R&D pipeline. Genomics, they know, is one space that can fill the gap. 


Another potential boon for the space is that larger biotech companies have cash. And although I think the biopharmaceutical companies will be looking for products and technology to acquire, I don’t think they will pay the premium that Big Pharma can.


Private companies will still face the vagaries of the IPO market. I think the window for IPOs should be looked at as more of a swinging door. It will open for some on a case by case basis, but these firms have to be careful not to get hit by that door from behind. Investor sophistication will continue to grow along with their expectations. And don’t expect the evaluations that we have seen in the past.


All in all I expect 2002 to be a good year. Let us hope and pray that it will be a year of peace.


Ira Leiderman is managing director of the Palladin Group, a New Jersey-based investment management firm. He was previously a senior healthcare banker at Gerard Klauer Mattison. You can e-mail him at [email protected].


TrendSpotter is a weekly column that focuses on how trends in politics, patent law, and the US and European markets affect the genomics industry. The column appears every Friday.


To access previous columns just enter the word "Trendspotter" in the archive search window on the homepage.

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