The debt crisis in Europe and the continued sluggish economy and protracted stalemate over deficit reduction in the United States are clouding the outlook for financing emerging biomedical research, according to a panel headed up by financier and FasterCures chairman Michael Milken.
Milken and a panel of three other Wall Street financiers at the Partnering for Cures meeting in New York City painted a bleak picture of the world economy and how that will impact funding for startup medical research. Milken, citing data from the Milken Institute, noted that 50 percent of all economic growth in the past century can be traced to medical research.
Against that backdrop, panelist Jason Cummins of Brevan Howard Asset Management said that foreseeable U.S. economic growth is expected to be about 2 percent of gross domestic product (GDP), half the historical rate of 4 percent up until the 2008 recession. What’s more, policy changes coming in 2013, including an end to payroll tax cuts, have the potential to reduce growth 1.5 percent. “The new normal is going to be the new abnormal joined by years ahead that could be some of the worst years in postwar U.S. history,” Cummins said.
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The biomedical space has not been spared the investor uncertainty that Washington inertia has spawned, according to Leon Black, founder of the equity firm Apollo Global Management. “Corporate profits are strong and corporations are flush with cash,” he said. “Unfortunately, politics has kept a lot of that capital on the sidelines today.” Essentially, that boils down to uncertainty over corporate and individual tax policies, he said. Black is also co-founder with his wife Debra of the Melanoma Research Alliance, an organization that funds research on that disease.
Healthcare expenditures are major drivers of deficits, and an ominous trend has emerged in recent years, according to Michael Cembalest of J.P. Morgan; that is, the U.S. government today spends more on healthcare and entitlements than it does on education, he said. “This doesn’t look like a sustainable equation,” he said. “We essentially have a libertarian tax system and a Swedish style entitlement system. You have to pick one or the other.”
Dealing with deficits is the key to getting capital flowing to innovators, the panel concurred. However, the uncertainty over meaningful deficit reduction and entitlement reform — in Europe, Washington and even Asia — is making that a cloudy forecast for biomedical startups.
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