It's not just Monsanto that's teetering on the brink:
"With so many firms in dire financial straits, many executives are desperately hoping that this spring's rally in biotech stocks will give way to a turnaround that will allow them to raise the cash they need to survive.
"Even in a turnaround, no one expects a return to the high-flying days of 2000 when investors seemed to throw money at all things biotech, Ernst & Young's Buckley said."
Biotech firms eye rally hungrily
By Naomi Aoki, Boston Globe Staff, 6/12/2003
A precipitous falloff in financings for the biotech industry has left one-third of the nation's publicly traded companies with less than a year's worth of cash, according to a study scheduled to be released today, with another 22 percent down to less than two years of cash. And for the second year in a row, biotech firms raised less than $10 billion in public and private financings, down from $33 billion in 2000.
With so many firms in dire financial straits, many executives are desperately hoping that this spring's rally in biotech stocks will give way to a turnaround that will allow them to raise the cash they need to survive.
"There's been a lot of speculative fever lately," said Michael Lytton, a venture capitalist with Boston's Oxford Bioscience Partners. "If the rally turns into a full-on turnaround, then you'd expect to see an appetite for IPOs and secondary stock offerings."
Companies and bankers are beginning to talk about initial public offerings for the first time in two years, said Steve Buckley, director of the New England life sciences practice at the accounting and consulting firm Ernst & Young. Ernst & Young is releasing the findings of its annual nationwide assessment of the state of the biotech industry today.
If the rally continues, Buckley expects to see an uptick in public offerings beginning in early fall. In the meantime, he predicts many companies will take advantage of rising stock prices in other types of financings that can be done more quickly than public offerings.
As if on cue, Oxigene Inc. this week raised $15 million in a private placement of stock to three unnamed institutional investors. Shares in the Watertown company were trading at less than $4 apiece at the start of June. But a week ago, its stock began to climb on news that the Food and Drug Administration had agreed to review its drug Combretastatin for thyroid cancer as data became available rather than waiting for the completion of final-stage studies.
Designed to shrink tumors by starving them of the oxygen and nutrients they need to survive, the drug is in the second of three phases of testing required for regulatory approval.
By Monday morning, its shares had hit a yearlong high of $19.40. Already in discussions with investors about a potential financing, Oxigene seized the opportunity. On Tuesday, it said that it had sold 1.5 million shares at $10 apiece. Its stock closed yesterday at $11.91 a share. Oxigene could have waited to see if its shares would climb higher. The company had $10 million in cash at the end of March, enough to carry it through next year. But its president and chief executive, Fred Driscoll, chose not to wait.
"I do see a change in the climate," Driscoll said. "I think it's going to get better. But I don't want to try to call the vicissitudes of Wall Street."
Even in a turnaround, no one expects a return to the high-flying days of 2000 when investors seemed to throw money at all things biotech, Ernst & Young's Buckley said.
Companies will need to maintain the financial discipline and focus forced on them by harsh economic times if they are to succeed. Investors are likely to be more cautious about where they put their money, favoring firms focused on producing products and making the most efficient use of their cash.
In the past year, biotech firms large and small have trimmed their work forces and eliminated research programs to focus on those with the best chance of reaching the market quickly.
Just in the past week, Cambridge firms Millennium Pharmaceuticals Inc. and Vertex Pharmaceuticals Inc. announced the elimination of hundreds of research jobs as they seek to make the transition from companies focused on discovering drugs to ones with marketed products.
Most biotech companies are not yet profitable and rely on investors' capital as they spend heavily to develop new products. The industry has made steady progress, increasing revenue by more than 15 percent each year in the past 14 years. Still, only 21 of the nation's 1,466 biotech firms showed a profit in each of the last three years, according to the report. But the report also shows how great the rewards of success in biotech can be.
Companies with profits and products are thriving even as much of the industry struggles to survive.
California-based Amgen Inc., the world's largest biotech company, expects to double its revenues by the end of 2005. Genentech Inc., based in South San Francisco, increased its profits by 21 percent last year. IDEC Pharmaceuticals Corp., of San Diego, reported a 48 percent increase in revenues for 2002 and a more than 40 percent jump in net income. Cephalon Inc., of West Chester, Pa., which reported its first profitable year in 2001, logged $500 million in sales last year.
"People are still anxious about capital," said Peter Feinstein, a managing partner in BioVenture Investors, a Cambridge venture capital firm. "The focus on profitability will be much stronger. You may not be able to run a biotech company with losses as long as you once could."
With that in mind, Oxigene chose to focus on just one of the four research areas it originally pursued, licensing out the rights to its other technologies two years ago.
The company was burning through $12 million each year. By narrowing its research focus, Driscoll said, the company cut its burn rate in half. It has moved Combretastatin into clinical trials for thyroid, lung, head and neck, and prostate cancer, and is evaluating three other compounds in lab and animal tests.
"The world has changed," Driscoll said. "The days of trying to be a man for all seasons are over. Investors and boards of directors will demand that companies exercise financial prudence."
This story ran on page E1 of the Boston Globe on 6/12/2003.
Copyright 2003 Globe Newspaper Company.
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