Life sciences execs worry about funding drug research

By Robert Weisman, Globe Staff

Life sciences companies face a funding squeeze as pharmaceutical giants consolidate and financial markets cool toward biotechnology start-ups, industry leaders said this afternoon.

"The biotechnology industry is a huge consumer of capital," Peter Wirth, executive vice president at Genzyme Corp., the giant Cambridge biotechnology company, told a leadership panel at Suffolk Law School in downtown Boston. "It takes a billion dollars to develop a drug. The critical dilemma now is how are we going to continue to pay for innovation."

In the past, drug development was funded by venture capital firms and other private investors in biotech and medical technology start-ups, but such backers have become discouraged by increasingly longer development cycles and a dearth of initial public offerings during the current economic downturn, executives said.

At the same time, they said, big pharmaceutical companies, which contributed funding through alliances with biotechs, have been acquiring one another, effectively shrinking the financing pool.

The result is fewer bidders and joint venture partners for small and mid-sized biotechs, said Steven C. Gilman, senior vice president and chief scientific officer at Cubist Pharmaceuticals in Lexington.

"As the large companies consolidate, there becomes less and less competition for investments in the medium-sized companies," Gilman said. "The prices and the competition come down."

Today's panel, titled "Leading the Business of Life Sciences," was sponsored by the Sawyer Business School at Suffolk University. It was moderated by Susan R. Windham-Bannister, president and chief executive of the Massachusetts Life Sciences Center in Waltham.

Windham-Bannister said the life sciences center, created through the Patrick Administration's $1 billion life sciences initiative, has helped to fill the funding gap through working capital loans, tax incentives, and strategic investments in life sciences start-ups.

"This is an area where there are jobs," she said. "And I really believe the way to get out of the current recession is by creating jobs."

But state money can go only so far. Genzyme's Wirth said more companies may have to adopt a "marathon model" of bringing drugs to market on their own and nurturing "patient capital" funding. The previous "relay model" of conducting new drug research and development and then selling it may now be broken, he said.

"That model worked well until a couple of years ago, when the guy who was supposed to take the baton wasn't there," Wirth said.