Staff Writer

As investors remain skittish about the economy, financing options for cash-strapped, publicly traded biotech companies have dwindled.

The outlook for the therapeutic biotech industry is somewhat brighter for venture-backed private biotech companies and public companies in a comfortable cash position, but many other biopharmaceutical companies are in a financial pinch.

And until the economic turmoil stabilizes, there are few options for public traded biotechs looking to raise cash, industry sources told BioWorld Financial Watch.

Jefferies & Co. recently analyzed the cash reserves and liquidity of more than 300 publicly traded biotech companies and found that 87 percent remain unprofitable and about half of them have less than a year of cash.

Secondary offerings and other forms of financings among publicly traded biotechs have declined significantly over the past year, according to Jefferies. The amount of capital that these companies raised through secondary offerings, private investment in public equity (PIPEs), registered direct offerings and credit facilities was about $3.2 billion in 2008, down 62 percent compared to about $8.5 billion last year.

Even biotechs with solid technology platforms and attractive products are having a hard time raising money, according to Jefferies. And biotech investors aren't likely to put up cash in those companies any time soon, Eun Yang, who wrote the analysis, told BioWorld Financial Watch.

"Until the market is stabile," she said, "investors are not going to pour money into biotech."

But Jim Greenwood, president and CEO of the Washington-based Biotechnology Industry Organization, said he sees "a light at the end of the tunnel" due to efforts by the Bush Administration and recent international cooperation to ease the frozen credit system.

Over the long-run, Greenwood said, "I have nothing but optimism about our industry." In the near-term, he said, additional relief may be needed for biotech companies.

It is likely that the next Congress and administration will seek another economic stimulus bill, and Greenwood, a former congressman, said that BIO hopes to use that legislation as a vehicle to get the industry some "very specific help," such as expanded research and development credits or rollover of capital gains taxes for investment made in the industry.

In the meantime, Greenwood said, BIO will be monitoring current efforts to fix the economic crisis sparked by the subprime mortgage meltdown. Earlier this month, the president signed into law a $700 billion bailout of financial institutions. This week, Treasury Secretary Henry Paulson said $250 billion of the bailout funds would be used to buy shares in financial institutions, nine of which have agreed to participate thus far.

"I think you can see, for sure, a backing away from investing" in publicly traded biotechs, Chris Christoffersen, a partner with Morgenthaler Ventures, said in an interview. Though, he said, "The number of good ideas has not declined."

Companies that have platforms with multiple products, a lead product that has already been through Phase IIa, or that can reach a clinical milestone within four to five years could be attractive to investors, said Christoffersen. He added that his firm has "many opportunities on our plate" that reflect that model. His firm's portfolio includes publicly traded Orexigen Therapeutics Inc., Replidyne Inc., Ribozyme Pharmaceuticals Inc., Threshold Pharmaceuticals Inc., and Vical Inc., as well as privately held biotechs.

But as it stands now, in this economy, Christoffersen said, "secondary offerings are just not going to happen."

Secondary public offerings were a major source of financing for publicly traded biotechs in 2007, with $5.1 billion raised that year compared to just $1.45 billion so far this year, according to Jefferies's research. As Greenwood pointed out, 2007 was a banner year for investment in the industry, though investment fell off in the final quarter of that year.

While the "usual techniques" biotechs used to raise cash such as secondary offerings have dried up, there are some ways around the seemingly closed capital market, Christoffersen said. He noted that venture capital firms may consider investing in public companies under a PIPE investment, but such a move is likely to be viewed as bad news for the initial investors.

In other instances, mergers and acquisitions and collaborations with pharmaceutical companies can work to insulate companies against the shaky financial markets, Christoffersen said, adding that aligning with a partner now may be challenging. A recent analysis by Datamonitor indicated that the number of licensing deals between pharmaceutical and biotech companies are on the decline, an average yearly decrease of almost 18 percent since the beginning of 2006.

While many biotechs have seen dramatic swings in share price this fall triggered by gyrations in the market, Genentech said this week that it does not see the credit crisis as having a major impact on its business overall.

Echoing that sentiment, Sudhir Agrawal, CEO and chief scientific officer of Idera Pharmaceuticals Inc., told BioWorld Financial Watch that his company has relied more heavily on partnerships than equity financing. That strategy, he said, has "played out nicely in this economic environment," Agrawal said.

Idera's last financing was two-and-a-half years ago. Its collaborations with Novartis for respiratory diseases, Merck & Co. for vaccine adjuvants, and Merck KGaA for cancer treatment, have brought in more than $1 billion in upfront and milestone payments.

The Cambridge, Mass.-based company has no debt, had cash of $59.5 million at the end of the second quarter, and an average annual cash burn rate of $14-$17 million over the last four to five years. It is considering other potential partnerships, not unrealistic in this market, in Argawal's view. "In these tough times, I think pharma will be looking for more partnerships with biotech companies," he said.

Other companies that already were low on cash when the economy started to spiral may have a much dimmer outlook. At Nventa Biopharmaceutical Corp., which has struggled to raise money, the economy is blamed for pushing the company into a restructuring this month in which it slashed 60 percent of its workforce. Nventa CEO Gregory McKee said, "I hate to be a pessimist." He suspects it could easily be six to 12 months or longer before biotech companies could see more investor money available for biotechs. "The one fundamental problem is there is no capital available," McKee said.