What the CEOs see
Four biotech leaders on the recession, venture capital, and how their industry can help lead Massachusetts into a recovery
The hot, burning core of any recovery in Massachusetts could well be occupied by the state's life sciences companies; for evidence, take the preponderance of biotech firms on this year's Globe 100.
With so much of the state's economic future riding on the fortunes of these companies, many of which began life as venture-funded start-ups, it seemed fitting to gather for this year's Globe 100 executive roundtable four captains of the industry: chief executives Henri Termeer of Genzyme Corp. in Cambridge, James Foster of Charles River Laboratories in Wilmington, Joshua Boger of Vertex Pharmaceuticals of Cambridge, and Martin Madaus of Millipore Corp. in Billerica.
The following are edited excerpts of their conversation with each other, and with Globe reporter Todd Wallack and Globe 100 editor Michael Warshaw.
Globe: How is the recession affecting the life sciences industry in Massachusetts?
Termeer: We are not immune. Smaller biotechnology companies are having a hard time getting financed. What they are after is great. But in a moment like this - maybe for the next six months or so - they're stuck.
Madaus: When I look at one particular segment, like the pharmaceutical/biotech industry, we are seeing a consolida tion and merger wave. We have seen three major transactions this year. When that happens, you usually see a slowdown first. You talked about small biotech, and there is an impact. And the concern is: What is the impact long term? Because a lot of the innovation, long term, comes from these companies. And the amazing thing is, you read these stories about people not going to the hospital because they are afraid of the expense. And that has an impact. We have seen already a drop-off in [prescriptions].
Boger: There will be a number of companies that will go out of business, not because of the intrinsic merit of their businesses, but because of the acute cash crisis.
Globe: How many companies will go under?
Boger: In this country, roughly a quarter to one-third of public biotech companies at the start of the year had less than six months' of cash. Some of those will be able to access [more] cash, but probably most of them won't. There will be distressed asset sales, less-than-favorable combinations and mergers, and some will close their doors. That will all be clustered at the bottom 20 percent of the capitalization of companies.
Termeer: There are 1,200 companies in this field. Twenty percent is 250 companies. Those 250 companies were created around great ideas.
Boger: And it is not necessarily the bottom 20 percent of the ideas. It may be their business plan got caught in the wrong place in a financial cycle. It may be they turned down a deal they should have accepted three months ago. Those shouldn't be fatal errors. But they happened to hit the economic cycle at the wrong time.
Foster: The venture capital community has a very difficult time on their hands right now. They are going to have to triage their portfolios. As several folks have said, some of the companies that are going to go under have great molecules and great ideas. But they have to be prioritized. The fact that X percent [of biotech companies] will go bankrupt is sad and probably going to have some irreparable long-term impact on drug development.
Termeer: The biotechnology industry has never made money - ever. You could say in a pure financial sense, why should it even exist? It should exist, of course, to come up with these discoveries. We have to experiment. We have to get breakthroughs. It is not a great economic cost if a few small companies don't exist. The cost is that it will delay momentum to come up with real solutions for some tough, rare diseases.
Boger: We are ironically investing more at the very basic research end - $10 billion more for the [National Institutes of Health]. But the next phase is the translation of all that money [into new drugs]. At a time when we are increasing by almost a third the investment at the front end of the chain, there is distress at the translational part of the chain. It's going to be a bad thing.
Globe: It sounds like you think there will be fewer cures.
Boger: I think there will be fewer cures. And we won't know which ones. Every time innovation gets snuffed out, we don't know what is lost.
Globe: Are venture capitalists reexamining their business model?
Termeer: They clearly are, because the exits are different. The [initial public offering] exit doesn't exist, so it's become transaction. You have to merge the younger companies into a more mature company.
Madaus: It's very much the psychology that risk is very unpopular. So any financial risk is a bad thing. There is a lot of money sitting on the sidelines. If the psychology changes, it could turn again.
Foster: It is true that you have some great technologies at some great companies that won't make it for all the wrong economic reasons. But what you are also seeing is the establishment of much more virtual companies. When some of these biotech companies started years ago, they had a great idea and they would hire 150 or 200 people. Now you have companies starting with five people.
The other thing is that a lot of the money is coming from big pharmaceutical companies. You are already seeing pharmaceutical companies place multiple bets on multiple biotech companies. And that would offset some of the short-term lack of available funds for biotech.
Termeer: Jim, you do the calculations: $20 billion has been raised each year over a number of years from outside investors. That can't be compensated [for] in the way you describe.
Globe: Will life sciences help lead the state out of recession?
Foster:You have a huge conglomeration of scientists, universities, hospitals, biotech, and pharma. It has to be one of the leading indicators of growth and development for the state going forward. While it's an expensive state as well to live, if you are a really smart scientist, this is a place where you want to be.
Madaus: The state is innovation and technology friendly overall. I think it is a good place to do business. That hasn't changed.
Termeer: I think the state for many years has done a pretty good job, and we have responded by putting more and more facilities in this state. The last 25 years have been magnificent. But there is a price to pay with these interruptions.
Globe: What is the most exciting innovation in the pipeline?
Termeer: It's not a single thing.
Boger: It happens slower than most people think, but it's useful to hark back to even 2000. That was the peak of the human genome excitement, and I still think that even now the excitement was justified. What wasn't justified was the time scale. A cure for Alzheimer's won't come in one magic discovery, but it's thinkable. And a cure for Alzheimer's pays for Medicare.
Madaus: Who needs another lipid-lowering agent? Who needs that? The therapies that exist today are good. So the whole innovation is shifting toward these incurable things. That's a good thing.
Todd Wallack can be reached at twallack@globe.com. 