If there is any doubt that we are still in a recession or a second recession, here are all the indicators:

1. Our US national debt is $14.6 trillion and growing, the government still can't agree on how to cut spending and balance the budget.
2. Congress couldn't agree on raising the debt ceiling (political power play should never play a role in this decision) and the country almost went bankrupt.
3. Due to this power struggle, S&P downgraded the US credit rating which could cost the government more in borrowing money.
4. Our national unemployment rate remains at 9.1%.
5. In August, there was ZERO  job growth signaling that for every job added, one was eliminated.
6. Consumer confidence is down and very few businesses are hiring.
7. In 2011, there were major companies' layoffs such as Cisco, Borders, Boston Scientific, Delta Airlines, Goldman Sachs, Lockheed, Merck, and more to come.
8. Federal Housing Finance Agency suing 17 major banks and institutions over bad mortgages. This could cost banks billions of dollars in legal fees that could result in more layoffs and more fees to customers.
9. Due to bad mortgages, Bank of America announced mass layoffs of 30,000, and could reach 40,000 with the Feds' lawsuit.
10. Warren Buffett invests $5 billion in Bank of America but many believe that it will not put a dent in the troubles with the 2008 acquisition of Countrywide Financial Corporation's financial problems.  

How is it a global crisis?

1. The financial crises in Greece, Spain and Italy are causing the euro to devalue or a euro crisis making this a global recession.   
2. China, South Korea, India and South Africa, the emerging markets are all trying to constrain rapid inflation rates.  
3. Global manufacturing grinds to a halt.  And many other indicators.

Adding more insult to the national debt, Hurricane Irene, although downgraded, still caused catastrophic damage in some areas of the east coast. New Jersey alone predicts damage will be in the tens of billion of dollars and there are no estimates from Vermont or New Hampshire on the initial damage.

Top 

Fund Raising

The good news is that there was an uptick in the number of companies (44) securing funding from all sources (Angel, VC, grants, foundations etc). However, the amount of funds raised is smaller as risk adverse investors are investing smaller amounts in more companies. See graphs below.

Eighteen (18) Pharma/Biotech got funding. $0 = no financial disclosure. Read more......

Twnety six (26) Medical Device, Diagnostic companies got funding. Read more......

Since the lead time in obtaining funding is long, these deals were probably made when the economy appeared to be recovering. With this double dip recession, we may see a decline in deals again and the size of the deals will continue to be smaller in the future.

Licensing Deals

In filling the funding gap and the product pipeline, risk adverse investors continue to do more collaborating and partnering, with the option to license the technology, particularly with pharma/biotech due to its enormous R&D expenses. For licensing deals click here. However, companies are also quick to opt out of licensing deals and return technology to their owner. There has been a number of Big Pharma that has opted out of these licensing deals in the past few months. Earlier this month, Pfizer  returned the rights to Biotica for their MS and Lupus drugs that they acquired through Wyeth. This trend is going to continue to grow until the global economy recovers.

Acquisitions

Earlier we've seen a number of mega acquisitions with Big Pharma and emerging market acquisitions. Now we are seeing more acquisitions with medical device (including diagnostic) companies but smaller acquisition purchases overall. The acquisitions, however, are interesting. Not only are companies acquiring companies that have complementary products in offering a full line of products and services, but some investment firms are trying to strengthen a company by going private or acquire a portfolio company that would have been undervalued if acquired by another company. For the month of August there were 19 acquisitions, 15 medical devices, and four pharma/biotechs. See graph below:

$0 = no financial disclosure. Read more on acquisitions.........

Emerging Markets

Pharma continues to invest heavily in the BRIC countries with manufacturing, partnerships in research and acquisitions. Some are expanding even broader. In August, GSK signed a deal with Iraq to manufacture their drugs there.[2] 

Competition is coming from all parts of the world. Most recently, Shionogi  of Japan agreed to buy a 24% stake or controlling interest in C&O Pharma of China from the company's largest shareholder for ¥14.3 billion ($185 million). Shionogi is also offering a general bid for C&O shares at an 11% premium to C&O July 28 closing price. The purchase of C&O gives Shionogi access not only to the company's highly profitable products, but its Chinese distribution network and other infrastructure.

Medical Device giants such as Boston Scientific, Medtronic, Smith & Nephew, Cook Medical have all drawn up plans to expand their presence in the BRIC countries. However, according to an analyst at Goldman Sachs, medtech companies may not get as much return on their investment in emerging markets as previously projected. Indices created by the investment bank predicted a flat 7.9% growth for the BRIC nations of Brazil, Russia, India and China through 2012. "Infrastructure in the BRICs has improved notably in recent years, but still remains far behind developed country norms," according to the report. "Infrastructure investment will need to accelerate in the years ahead to prevent it from constraining future growth rates in the BRICs."

Individual growth rate predictions were:

• Brazil: 4.5 percent for 2011, 4.0 percent for 2012
• China: 9.4 percent for 2011, 9.2 percent for 2012
• India: 7.5 percent for 2011, 7.8 percent for 2012
• Russia: 5.3 percent for 2011, 5.6 percent for 2012

IPOs

The IPO market is basically still closed and companies have had to find creative ways to go public. A good example is GI Dynamics, which has gone public on the Australian stock market. GI Dynamics was looking to raise between $80 to $95 million (AUS), or $86 million to $102 million (USD), through an initial public offering in Australia.

GI Dynamics' EndoBarrier gastrointestinal sleeve won Australian approval for treatment of type 2 diabetes and obesity at the beginning of August. The device received CE Mark in Dec., 2009, for six months of treatment. This prompted Medtronic to invest $15 million into the company and other investors are backing the firm as it prepared for commercial launch in the European Union.

At the end of August, GI Dynamics raised $85 million ($80 million in Australian dollars) in an initial public offering in Australia, according to an online report from The Australian. The company was successful in going public as opposed to past companies in the US where a number of companies have either withdrawn from the market or raised amounts significantly lower than their targeted goal.

Companies need to continue to de-risk and share the risk in product development and commercialization. To de-risk the process, companies will have to conduct all the technology and business due diligence upfront, through commercialization and beyond. By taking this approach, companies will consider not only the technology but every aspect of the business and what they need to be successful thereby de-risking the process.

Investors have 5 things they look at before they invest in a company: 1) technology risk, 2) market risk, 3) regulatory risk, 4) execution risk, and 5) team risk. They want companies that have done the due diligence in all five areas. Investors are only willing to take on one of the five risks. In addition, they will conduct their own due diligence before they invest, which is why VCs and Pharma venture funds tend to invest together. Or once you have one investor, it is easier to get the second investor. Either the VC or the Pharma venture funds have already done the due diligence. To minimize market risk, please see my May newsletter.

Since start-ups and early stage companies are very risky, in sharing the risk, investors will continue to do more partnerships or collaborations, with the option to license the product. The upfront payment is smaller and the companies receive additional funding upon achieving milestones. Upon a license agreement companies receive additional royalties or milestone payments. However, a number of Big Pharma in the past have opted out of the licensing agreement and returned the drug candidate when it no longer fits into their strategic focus or the drugs may have obstacles to overcome. At this point, the technology company will have to decide whether to continue forward in finding another investor or abandon the drug program. This reinforces why companies need to conduct the due diligence upfront in product development in confirming they are going in the right direction.

Some companies have done very creative deals in sharing the risk. Funding will cost more whether it's in equity or monetary returns. Here are three examples:

1) Eisai signed an unusual deal with SFJ Pharmaceuticals to fund their late-stage studies of an experimental cancer drug. SFJ will pay all the money needed for the trials in exchange for potential milestone payments as the drug progresses in Phase III. And Eisai will hang on to the marketing rights on the drug.

2) Amira  Pharmaceuticals and its investors has agreed to sell only one of its three drug development programs that inhibit a biological pathway known as LPA1 against pulmonary fibrosis, systemic sclerosis, and scleroderma. Pulmonary fibrosis, is best known for damaging and scarring the lungs of first responders to the 9/11 terrorist attacks. Currently, there isn't any effective FDA-approved treatment. This is a "grievous illness," according to CEO Bob Baltera, which means anybody who comes up with a good drug could probably command a high price, and end up with a pretty sizable market opportunity.

But what makes this lead drug candidate different is that Amira's team went through a methodical process similar to Big Pharma screening a number of small-molecule drug candidates. And they spent extra resources continuing to invest in backup compounds in case the first one failed, and alternative compounds designed to hit closely related biological targets. It's a rigorous approach that many cash-strapped biotechs can't afford to follow, as most of the resources go toward one lead drug. But the process that Amira followed, (which tries to minimize technology risk) and considered a luxury, was critical in creating an auction among pharma companies for the Amira program, said Brad Bolzon of Versant Ventures.

"As a small company, you have to almost be better than the programs out of Big Pharma. You don't have the ability to muscle it through with greater resources," Bolzon says. "And if there are any warts on it, someone in a 30-40 person Big Pharma diligence team will pick it up."

3) Genentech signed a deal for the global rights to a preclinical cancer drug from Forma Therapeutics. No numbers were disclosed in the release, but the collaboration appeared typical of an early-stage pact: an upfront fee, some research funding and milestones. A few unusual things stood out:  

i) Genentech--a global powerhouse in the cancer field--was looking to Forma for an injection of discovery magic with one of the biotech's potential tumor-starving compounds.  

ii) Genentech's buyout clause. Rather than pay out royalties over the years for any successful product--an event that would lay some years ahead--Forma stands to gain an acquisition fee that would be paid out to investors, giving them a return before any classic exit point.

"We are a broad drug-discovery engine able to create multiple programs," said Steve Tregay, CEO of Forma. The Genentech pact "hopefully will be the first of many types of opportunities. Because of the breadth of our technology we can do broad target deals and have our own pipeline moving forward."

In the future, we will see a lot more creative deals not only in securing funding but with acquisitions as well. And for that reason, there will be a lot more deals where no financial terms are disclosed. This is evident in the number of acquisitions in August that have not revealed any financial terms.

For larger companies looking for growth overseas, it may be worthwhile re-examining whether they want to have a bigger presence in Greece, Spain or Italy long-term if they don't already. There may be more of an incentive to build a manufacturing plant or acquire companies now in these countries that will payoff in the long run once the global economy turns around. This helps the country out and the company will gain more market share. This may seem counter intuitive, when everyone is focusing on the BRIC countries for growth. But, even South Korea  is cutting prices that have many Korean pharma companies protesting.  

As a global economy, we cannot afford any country to default as this will hurt the rest of the world. There is now speculation that China may make significant purchases in bonds and investments in strategic companies in Italy in helping out their economy.

For additional information or questions, feel free to contact us.

Top 

Scientists from the University of Medicine and Dentistry of New Jersey-School of Osteopathic Medicine and Durin Technologies have developed a blood test that can be used to diagnose Alzheimer's disease with "unprecedented accuracy." This test is a human protein microarrays that detect the presence of specific antibodies in the blood.

According to the researchers, the test has a diagnostic sensitivity of 96 percent and a specificity of 92.5 percent and has the potential to spot Alzheimer's in its earliest stages - years before symptoms such as memory loss, poor judgment or erratic behavior appear. The test also has the ability to distinguish Alzheimer's from Parkinson's disease - a closely related neurodegenerative disorder.

"There's a dire need for an accurate, relatively non-invasive and inexpensive diagnostic test for Alzheimer's," said Robert Nagele, founder of Durin Technologies and a professor at the UMDNJ-School of Osteopathic Medicine in Stratford. "A test that cannot only diagnose the disease in individuals showing telltale symptoms, but possibly also detect the disease years before these symptoms appear, would make early therapeutic intervention possible. This would be a significant breakthrough as pharmaceutical companies are now working feverishly to develop new drugs that can stop or slow the progression of Alzheimer's."

For a copy of the white paper on this blood test, feel free to contact us.