Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Why There Are 25% Fewer Public Biotechs Than Three Years Ago


The liquidity crisis has really hit this sector hard.

There are far fewer publicly traded biotechnology companies in the US than just three years ago, and a number of those remaining are scrambling to raise money and conserve their cash.

The number of public biotech firms in the US dropped by a quarter to 294 since late 2007, according to a report by the trade group Biotechnology Industry Organization (BIO). One hundred companies were either bought or they went out of business in that time.

This striking number points to the challenge these companies face raising capital. Now more than ever, investors need to scrutinize the cash on hand at these companies and question funding strategies.

"For the past two years, being able to fund operations and adequate working capital is clearly a critical issue for investors," says John Craighead, BIO's managing director of investor relations and business development.

The Nasdaq Biotechnology Index is up about 7.5% this year, outpacing the broader Nasdaq and S&P 500 indexes. The gains, however, are in part due to Genzyme Corp.'s (GENZ) stock rising almost 50% this year on news Sanofi-Aventis (SNY) wants to take it over.

BIO tracked 131 companies that had enough cash to fund one year of operations as of January 2009 to see how they fared through last month. Ten were acquired and 19 ceased operations. The other 102 stayed afloat through a combination of layoffs, private funding, secondary offerings and licensing early-stage experimental drugs to other companies. A smaller number raised debt or sold assets.

40% of those surviving companies attracted private investors. That's about a fourfold increase in private money flowing into public biotech firms, Craighead says. Much of the money was from venture capital capital firms. In many instances, the VC firms were increasing their stakes because they couldn't cash out their investments.

While the IPO market for biotechs was anemic over the past year, there was an increase in secondary offerings. Craighead notes that companies that had late-stage developmental drugs with positive trial data, like Dendreon Corp. (DNDN) and Human Genome Sciences Inc. (HGSI), were the most successful with follow-on stock offerings.

Thirteen biotech companies went public since August 2009 and 12 of those firms have seen their stocks decline, BIO found. The outlier is Talecris Biotherapeutics Holdings (TLCR), which rose 8% from its IPO through late September, BIO says. The median performance for the 13 companies was a 20% loss.

The funding picture is getting a little better for the remaining 294 public biotech companies, BIO found. As of midyear 2010, a quarter of the companies don't have enough cash to fund a full year of operations. But that's better than a year and a half earlier. In the fourth quarter of 2008, 45% of biotech companies had less than one year of cash on hand.

BIO surveys investors occasionally, the last time being in early 2009, Craighead says. What he found: "Many are comfortable investing in companies with one year of cash and many are not comfortable investing in companies with six months of cash."

< Previous
  • 1
Next >
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos