Beyond Borders: Global biotechnology report 2010

developed countries — and whether that
recovery takes the shape of a “U” (slow) or
a “W” (a double-dip downturn). Thus biotech
companies — particularly the vast majority
that are unable to finance on the heels of
breakthrough clinical news — will have to
navigate an uncertain and likely volatile
fund-raising environment for the foreseeable
future. Given the substantially slower pace of
fund flows into the venture capital industry,
A closer look
the biotech industry will not see a quick
return to the venture funding levels of 2007
and 2008. Venture capitalists, whether
surviving or thriving, will continue to raise
the bar on the companies they back and will
explore alternative models to deploy capital
more efficiently.
Still, corporate venture capital — whether
direct or funneled through established
Tapping economic development incentives
As funding options have dwindled in the current financing
environment, companies need to be increasingly creative in
finding new sources of capital. It is not surprising that state and
local economic development incentives are getting increased
attention, since such incentives can help improve cash flow, pay
for capital acquisitions and job creation, and provide financing at
below-market rates.
But the labyrinth of state and local economic development
agencies is unfamiliar territory for many biotech companies,
which have traditionally focused on conducting R&D and
raising money from VCs and the capital markets. To secure
a comprehensive incentives package, companies often
need to meet with multiple state and local agencies several
times, complete lengthy applications and collect extensive
documentation — all while trying to keep their projects on track
and on time.
To succeed, companies need a strategic approach that
incorporates three critical elements:
Effective data collection. Many incentives programs require a
company to commit to certain levels of capital investment and/
or job growth or retention. Consequently, it is critical to have
ready access to meaningful data that can inform incentivesrelated
decisions. This includes projected capital investment
data (both routine and extraordinary spending) as well as data
on projected human resources needs (job creation, layoffs,
consolidations, training and employee-development needs).
A single uniform process. The process of obtaining economic
incentives is an ongoing one that requires monitoring over
74 Beyond borders Global biotechnology report 2010
VC firms — is almost certainly going to
increase, as pipeline-starved pharma
companies have a vested interest in
fostering a drug discovery ecosystem that
includes a healthy number of innovative
and focused biotech companies. Expect
to see new investment and collaboration
structures that include increased
optionality for investors and companies.
Ron Xavier
Ernst & Young LLP
time. The process begins with reviewing the capital and human
resource investment data to identify and qualify potential
opportunities. Once a company identifies the incentives
programs that are most relevant, the next step is to pursue
these opportunities with the relevant governmental authorities.
Finally, once these incentives are secured, the company will
establish protocols to meet compliance requirements on an
ongoing basis.
Stakeholders. The incentives process can affect many different
functions within a company, including real estate, operations,
human resources, tax, finance and government affairs. A
single group or business division is unlikely to have adequate
information or resources to effectively pursue and secure
a comprehensive incentives package. The most successful
incentives plans therefore involve a coordinated effort across
departmental lines. Input from all affected groups will ensure
the company takes a holistic approach to securing incentives
that best meets the company’s total needs.
We are already seeing increased biotech company interest in
economic development incentives. In the “new normal,” the
trend is likely to continue. Despite their budgetary pressures,
state and local governments regard biotech companies as
desirable targets and drivers of long-term economic development
and job creation. With the right focus and a strategic approach,
there is no reason why more biotech companies should not be
able to avail themselves of these funds.