Uncertainty is the enemy of any business, and this fact is ever apparent as Congress, the US Treasury Department, and the Federal Reserve work out a plan to stem the financial crisis facing the investment and banking sectors. For suppliers and service providers to the pharmaceutical industry, particularly to the emerging pharmaceutical sector, the critical question is how the current financial turmoil will affect investor confidence and the financing flow into the pharma/biotech sector.

For now, the answer is still unknown. But what is known is that prior to this week’s events, overall financing to the US biotech sector was far off the levels seen in 2007 and 2006. Through the first half of 2008, public and private financing (excluding financing from partnering deals) for the US biotech industry was $5.7 billion, according to Burrill and Company. That half-year mark is well off the pace to achieve the full-year financing levels of $22.0 billion in 2007 and $27.4 billion in 2006.

“The capital market bears have appeared, and 2008 is shaping up to be one of biotech’s worst in terms of IPOs, [initial public offerings] ” said Stephen Burill, CEO of Burrill and Company, in a July 1, 2008 press release in commenting on the financing trends in 2008. “Except for venture-capital deals, all other forms of financing have fallen compared to the first quarter of 2008 and comparative 2007 figures.”

In US biotech financing, only $6 million was raised through IPOs through the second quarter of 2008; in contrast, $2.0 billion was raised for all of 2007, according to Burrill and Company. Financing raised through other public instruments (follow-on offerings, private investment in public equity, and debt) was $3.6 billion through the first half of 2008. For the full-year 2007, the total was $16.7 billion and $22.7 billion in 2006. Venture capital financing for the US biotech sector through the first half of 2008 was $1.8 billion, compared with $4.4 billion for the full-year 2007 and $4.2 billion for the full-year 2006.

What will happen for the balance of 2008, particularly in light of the current tumultuous times for financial/capital markets, has yet to be seen. Tighter lending practices and reduced private and public investment could hamper the liquidity of smaller biotechnology and pharmaceutical companies, which would be a concern for CMOs and CROs and other suppliers to this client base.

The only words of advice at this time: watch out for a possible bumpy ride.