Creating shareholder value
July 31, 2007
Earlier today, I was reading an article in the San Francisco Chronicle on increased shareholder activism in the biotech industry. For those who are not completely familiar with my economics, I tend towards a libertarian view, but there is one aspect of the biotech industry that has always made me uncomfortable. In the article, Chris Young, Director of M&A research at Institutional Shareholder Services says that public biotech companies “must surrender the idea that their primary mission is to create drugs for the future or serve the greater good”. That to my mind is a fundamental flaw in the business of biotech. Science and biotech in particular are high risk, long cycle, R&D intensive operations. While there is a lot one can do to do more efficient research and development, the IP climate, the risk factors and the evolving nature of science is such that focusing on shareholder return, at least in my opinion, makes running a successful biotech business very difficult, or even pharma for that matter
What is a successful biotech business? Is it one that yields the highest return to its shareholders? Or is it one that develops the best pipeline of products that can have an impact on human health? If one lives in the short term, quarterly view of things, the chances of success are so slim, you should not even bother with going public. Some of the problems lie with the companies and with the unrealistic expectations that are raised with their early rounds of funding, but in general, a company that rests on it’s initial product is going to suffer long term consequences. What they need to do as they mature is place strategic bets, not bet everything on one option as is alluded to in the story.
Further Reading
Science Business: The Promise, the Reality, and the Future of Biotech
Technorati Tags: Public Companies, Quarterly Profits, Shareholder Value, Biotech
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August 3, 2007 at 2:08 pm
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