Eastwoods Consulting
Notes from the East Woods
musings on opportunities in the life science marketplace

March  2009   
  
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Greetings!

Predators and prey are apt metaphors for many life science companies today.  Please have a read and feel free to let me know what you think.  Thanks.

Regards,

Paul Danis
Founder and Principal
 
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This Month's Features
Owls, Voles and Acquisitions
Life Science Market Update
Owls, Voles and Acquisitions
Predator and Prey
As the barred owl flew over my head with an unfortunate vole in its talons, it made me think about some of the current dynamics in the life science marketplace.  Companies are under increasing pressure as sales slow, cash reserves decline, and actions become more urgent.  Some companies will consume others as they all try to find ways to prosper.
 
If we look at some of the recent acquisitions, we can see that most are completed with mutually beneficial terms.  However, as the need to grow couples with the weakened state of many smaller companies, the rate of acquisitions should increase and terms should become more onerous (or favorable, depending on your side of the table.)  An indicator of this strain is that according to Steven Burrill, CEO of Burrill & Company, 200 of the 387 public biotech companies are now trading below cash value.  With this as a backdrop, how does one ensure that the best outcomes can be achieved for everyone. 
 
If you are a smaller company trying to make it through this period and avoid predation, you need to be strong, smart and fast like the agile rodents that have not become food for the foxes.
  • Be strong - Of course cash flow is primary, but also keeping a disciplined focus on the company's objectives is paramount.
  • Be smart - Be very aware of the environment, have realistic expectations of growth (or lack of), know your competitors and neighbors, and treat your people well.
  • Be fast - Keep open to the changing situation, be quick to learn of changes to the market, and foster nimbleness in the organization to adapt to these changes.
If on the other hand you occupy a higher position in the food chain and there is less chance of being consumed, you will have an abundance of opportunities below you.  However before you gorge yourself on all those tasty morsels, be sure to use the utmost care and discipline.
  • Be very selective - since "successful" acquisitions are few and far between, this is not the time to fill up on bargains.  It is estimated that upwards of 80% of acquisitions do not meet the goals of the acquirer.
  • Be sure there is compatibility between the companies across many areas such as business methods, style, and culture.
  • Spend the effort to really understand the future market opportunities.  With the current situation changing rapidly, be sure you have a reasonable handle on this.
  • Strike when opportunities are present.  Though careful and deep analysis are necessary, be sure you can move fast enough to pull the trigger in time.  There are other predators competing for the same game.
So whether you are crawling along the ground or soaring through the skies, be sure to keep a diligent eye on your surroundings.  This is a critical time to avoid predators as well as to have a tasty feast.
Life Science Market Update

Index

February Value

Change YTD

Yearly High

Yearly Low

EC BioTools

411

-7%

437

411

EC BigPharma

535

-14%

607

535

EC Biotech

517

-10%

568

517

The slide from the end of 2008 continues, with the life science sector showing slightly more buoyancy than the DOW and S&P, which are down 20% and 19%, resp., from year's end.  Almost all members of the indices were down with only Teva, Life, Illumina, Theravance, and Genentech bucking the trend.


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Many of the life science indices currently available are a mixture of various types of companies. In order to better assess the situation in the different segments, Eastwoods Consulting has created these price-weighted indices for the sectors of large pharmaceutical companies, biotech companies, and life science research tools companies.
  • EC BioTools Index - A, ACCL, AFFX, BEC, BIO, BRKR, CALP, DNEX, HBIO, HLCS, ILMN, LIFE, LMNX, PKI, QGEN, SIAL, TMO, VARI, WAT
  • EC BigPharma Index - JNJ, PFE, GSK, NVS, SNY, MRK, ABT, LLY, AZN, WYE, BMY, NVO, BAX, TEVA, SGP, RHHBY.PK
  • EB Biotech Index - DNA, AMGN, GENZ, BIIB, CEPH, GILD, BMRN, AMLN, IDXX, SEPR, OSIP, PDLI, CPHD, ALKS, REGN, MEDX, THRX, HGSI, SGMO, NKTR
  • Prices are taken at the close of each month.
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About Eastwoods Consulting
Eastwoods Consulting


Eastwoods Consulting helps companies connect their technologies and products with the life science marketplace.  By focusing on the most valuable opportunities, efficiency is increased, and profits grow.
 


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