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TRENDSPOTTER: Time to Put On Your Winter Coat?

Do you remember not that long ago when the prolonged downturn in biotech stocks was being called a “nuclear winter?” So is this now “anthrax fall?” And will this lead to a “winter of our discontent?”

It has been six weeks since that terrible day in September. Life goes on but with changes, some subtle and some not so subtle. But one thing has not changed: the skittishness of the stock market. 

The terrorists struck at a time when the economy was showing some softness.  Financial repercussions as a result of the Sept. 11 attacks are running through the economy in unpredictable ways and adding to the uncertainty.

The initial uncertainty had affected the stock market, and biotech companies in general and genomics firms in particular had been treading water after a steady downward drift in price. When the market reopened in mid-September, the sharp sell-off took our sector along for the ride.  

With the arrival of bioterrorism in the form of anthrax spores, some stocks have seen a sharp upward spike in price—namely, those firms that may have some involvement in detecting, analyzing, or treating the disease. But even the price of these shares has been oscillating.  

An obvious public relations failure in the genomics sector has been the dearth of communication about the role the industry can play in the war on bioterrorism as well as the sector’s contribution in clearing up the aftermath of the Sept. 11 attacks. 

A spokesman for the US Army disclosed this week that identifying the strain of anthrax used in the recent attacks is being aided by comparing its DNA to a library of more than 1,000 strains that the Army has on file. 

Furthermore, stories have appeared that described how technology developed by genomic companies is being used to identity victims of the World Trade Center attack.  The use of genomics in these cases (and in others) is well known to us but not yet fully obvious to the general public.  

But general economic uncertainty continues to germinate anxieties. As I have previously said, do not allow your cash position to fall below twelve months.  Remember that less than 12 months of cash places your company on a deathwatch. 

If you are hoping for a corporate deal, remember that they always take longer than anticipated and that the current situation is probably prolonging the timeline to deal completion. If you were hoping for a public deal, forget about it, at least for now!

If you are in the former category and your balance sheet is just OK, then now is the time to top off your tanks. If you close a financing during your negotiation period it sends a message to your potential partner that you are not dependent on their cash because financial investors still support you.  

If you are in the latter category then the time has arrived when you have to bite the bullet and do a private deal. Don’t wait for your stock price to recover, for it might not do so before you become desperately low on cash. And as we all know, you can cut a better deal when your back is not against the wall. 

As you have read in my column, think out of the box, be creative, and just raise cash.  

If you are in the luxurious position of having a strong balance sheet then now is the time to evaluate your programs. Carefully assess what you are doing and where you are going. Can you achieve your goals with the cash you have on hand and in your company’s lifetime? If necessary, bring in outside referees to help you through this process. But the bottom line is to husband your cash.

Times are tough and they may get tougher but the time is right for the tough to get going.

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. 

Next week, Robert Goldberg, a senior fellow at the National Center for Policy Analysis and a senior research fellow at the Ethics and Public Policy Center, will write about how recent trends in politics are affecting the genomics sector.  

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

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