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Volume 86 Issue 48 | p. 10 | News of The Week
Issue Date: December 1, 2008

Biotechs Scramble

Companies are taking drastic measures to conserve cash for R&D
Department: Business | Collection: Economy
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AS THE CREDIT CRISIS grinds on, the outlook is getting increasingly grim for many of the small biotechnology companies that have products feeding into the drug industry's pipeline.

Since October, biotech firms have been resorting to job cuts, reverse mergers, and other creative deal-making to fund their R&D efforts. Last week brought fresh examples of the challenging climate: San Diego-based Vical said it would slash 20% of its staff and close a research facility; CombinatoRx, in Cambridge, Mass., made its second staff cutback in a month; and Montvale, N.J.-based Memory Pharmaceuticals, which has drugs in Phase I and II studies, agreed to be taken over by Roche for $50 million.

The picture could get even bleaker in 2009. According to the Biotechnology Industry Organization, a trade association, 99 public companies have less than six months of cash on hand, and more than a third of "microcap" biotechs—those with a market capitalization of less than $1 million—barely have enough money to make it through the next year.

It is not unusual for small biotechs to have limited cash at the ready, but they traditionally have had a fairly easy time raising that next round of financing. "The real problem is the massive compression of value," says G. Steven Burrill, CEO of the life sciences investment firm Burrill & Co. Biotech stock prices have plummeted across the board, crimping the ability of firms to raise money from investors or through additional stock offerings.

Moreover, investment banks with expertise in crafting deals that let companies survive have their own problems and thus "zero interest and zero capability" to help the biotech sector, Burrill says. Finance companies with money to invest, such as hedge funds, aren't looking to add small struggling firms to their portfolios.

Big pharma needs a healthy biotech industry to fill holes in its R&D effort, and the credit crunch "will slow up the development of the pipeline," Burrill says. On the plus side, he adds, small companies with promising products—such as Memory Pharmaceuticals—can be bought on the cheap.

 
Chemical & Engineering News
ISSN 0009-2347
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