IIc. THE VALUATION SQUEEZE — IS BIOTECH’S FINANCIAL MODEL BROKEN?

With a few exceptions, the valuations of the more than 40 biotechnology companies that went public during the last 24 months were lower than they were during the “window” of 2000, despite the vast majority of these companies being, on average, more mature, better capitalized and much further down the clinical development curve. Further, many more initial public offerings have recently been postponed due to “poor market conditions”. Accordingly, the returns, if any, which venture capital funds and institutional investors are generating on late stage biotechnology are lower than anticipated.

Why are public market valuations for biotechnology companies so hard to come by? More importantly, are these lower valuations, and the returns they offer, sufficient to continue to attract institutional investors, venture capital, other investors and talented management teams to the biotechnology sector? Is biotechnology’s financial model broken? If so, what does it signify for the future of biotechnology?