By financen | April 17, 2009 - 4:12 pm - Posted in 2009 Recession

The world is going through extraordinary times during the recession period and this is like something not experienced since the world wars. Many business and industries are going through turmoil and uncertainty in the current financial market. There are many financial surveys to read but hard to digest. Many industries all around the world are looking for help.

The pharmaceutical and health-care industry have historically been relatively immune to economic turndowns, because there’s vacation period for illness. However, the financial support will be reduced during the ongoing recession. Therefore, like in other industries, it is expected that the most affected by the reduced availability in funding will be the early stage biotech and pharmaceutical companies who need funding. But is there more to come?

Some of the possible speculations are as follows:

There is a very good chance that things will get worst than before because of the present market being so uncertain and no help from any financial investors because of the probable risk factors, notably in regards to the early or short term investments. In such a scenario, all industries will be affected. Companies with little cash will find hard to survive, until the economy heals.

Investors are often reluctant to put their money into biotech and pharmaceutical companies because of the other very attractive industries such as buyouts and investments in resources (mines, oil). Opportunities for capital will continue to decline due to the present economic condition. Because of the present and well recorded risk factors in the biotech and pharmaceutical industry, investors are going to stay away and put their assets in other sectors where risk is less. Exit routes always play an important role. Unless there is a fast return, there is only one way for a biotech/pharma company to be profitable: through acquisition by a larger biotech or pharmaceutical company. The way these companies usually grow, its kind a tough to see something like this happens. Smaller companies who are unable to sustain their finance could potentially ask bigger biotech/pharma company to bankroll them, allowing the industry to survive and even grow.

The second hypothesis has already started taking place. Big drug companies are on the shopping spree. Acquisitions are becoming cheaper due to the tumbling stock market. Smaller companies that are struggling to find loans or capital are more inclined towards the bigger companies for help and survival.

Nonetheless, it is important to remember that although the recession has yield great merges and acquisitions by the bigger biotech/pharma companies, the biotech and pharmaceutical industry is also very affected by the economic slowdown, and many of them are cutting jobs and closing factories. The belief of pharmaceutical and the health-care industry immunity to economic turndown is now on hold, and so is the hope for new medicine breakthrough.

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