3. James Flanigan's article "Biotech Tries to Shrug off Setbacks," from the New York Times and found here: http://www.nytimes.com/2009/09/17/business/smallbusiness/17edge.html?_r=1 outlines the difficulties that biotech firms have had recently with respect to securing financing. The investment climate is different for several reasons. The first is that the traditional providers of venture capital to biotechs have seen their asset values plummet along with the stock market. As a result, industry insiders are pessimistic with respect to the availability of venture capital in the coming years. The remainder of the article explains that despite the gloomy outlook, there are players in the industry that are optimistic, in part because they perceive the industry as sufficiently strong to attract capital even in a tight VC environment.
The article's guardedly optimistic finish leaves the question unanswered as to the consequences of the current sluggish VC environment being sustained for the next several years. This is an important question to answer for the industry. While some firms may still receive financing, the apparent shortfall will reduce funding opportunities for many more. Most of these firms will go quietly into the night, taking solid leads and research with them. This will reduce opportunities for larger firms that would otherwise buy the leads or enter into partnership with smaller firms. There are profound implications for understanding what would happen if the optimists are proved wrong and the venture capital market for biotech firms remains weak for years.
An economic analysis could be conducted to help answer this question. Certain assumptions could be made with respect to the reaction of firms within the industry...
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