Biotech's Financing Drought

THE DOWNTURN in financial markets has stemmed the flow of capital for biotechnology start-ups, bringing initial public offerings (IPOs) of stock to a standstill. Some financing still trickles in through private equity, venture capital, and partnering investments, but at levels about half of what they were in 2006 and 2007, San Francisco merchant bank Burrill & Co. reports.

According to the firm, 2008 is shaping up to be one of the industry's worst years for IPOs, in contrast to 2007 when they generated more than $2 billion. So far this year, only Sunrise, Fla.-based BioHeart has held an IPO, raising just $6 million.

About 16 biotech companies have withdrawn their IPOs in 2008, according to investment research firm Renaissance Capital. Aldagen, CyDex Pharmaceuticals, Phenomix, and Xanodyne Pharmaceuticals canceled just last month. Last week, Cardiovascular Systems Inc. (CSI) pulled its IPO and opted instead to merge with Louisville, Colo.-based Replidyne.

"Given the uncertainty regarding timing of a market recovery, we believe that this transaction offers the best opportunity at this time for continued growth and for our company to gain access to the public capital markets," CSI CEO David L. Martin said in announcing the deal.

A handful of biotech firms—including Aegerion Pharmaceuticals, Alimera Sciences, BioTrove, and Omeros—have filed for IPOs, but it's uncertain whether they'll move forward. Other biotech companies are laying people off (see page 24).

"After roughly 40 years, where biotech companies have had reasonably easy and inexpensive sources of capital, the world has changed for them and it is going to get much more difficult," Burrill CEO G. Steven Burrill says.