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What’s in store for biotech?

There is no shortage of talking heads on the evening news commenting on the current financial situation in both the US and Canada. Historically, the market has always recovered, leading some to suggest that the next few days may actually present a prime buying opportunity for those a number of years away from retirement with a bit of extra cash on hand.

Not surprisingly, the credit crunch is predicted to have an effect on biotechnology and healthcare stocks as well, but it’s not what you might think.

True, people tend to move into healthcare stocks in times of financial turmoil as people will always need medicine, and investor sentiment seems to be shifting towards big pharma—the thinking being that if you spend billions of dollars a year on research and development, you’re bound to produce something. This was recently echoed in a presentation by value investor Francis Chou, in which he advocated buying a “basket” of biotechnology and pharmaceutical stocks rather than making a bet on a single company. However, this doesn’t mean that biotechnology and pharmaceutical indices haven’t taken a beating with the rest of the market.

What’s more, a recent Datamonitor article has suggested that the current credit freeze will be especially rough on small- to mid-cap biotechs. It’s no secret that in an effort to bolster their therapeutic pipelines, large pharmaceutical companies have been looking to purchase small (and not so small) biotech firms. Because many smaller firms won’t necessarily have the cash on hand to weather an extended period of economic uncertainty, and because the credit markets are all but closed to these companies, the thought is that they may be forced to sell out to cash-rich big pharma at bargain prices as a way to stave off bankruptcy.

Stay tuned to find out what’s in store for biotech.

Andy Haigh

Andy holds a PhD in Biology from Dalhousie University and recently completed the Richard Ivey School of Business Health Sector MBA program. He currently works with the Business Mentorship and Entrepreneurship Program (BMEP) at MaRS. See more…