Business & Technology : Tuesday,
September 18, 2001
BOSTON — Biotechnology companies
may find it harder to raise cash as economic uncertainty grows after terrorist
attacks on New York's financial district and the Pentagon, investors and
executives say.
Biotech financings have dropped more
than half to $4.8 billion so far this year from $10.1 billion a year earlier.
The attacks could worsen an already-weakened
outlook, sending investors fleeing for lower-risk investments and limiting
prospects for raising fresh capital, industry experts say.
"Market volatility is going up and
liquidity down — those are bad things if you have to go out and finance,"
said James Mullen, chief executive officer of Massachusetts-based Biogen,
which makes the top-selling multiple-sclerosis treatment Avonex.
"The ability to raise funds in the
near term is going to be very difficult."
Private placements have dropped to
$1.4 billion so far this year from $2.3 billion at this time a year ago;
convertible debt is $1.7 billion compared with $2.1 billion last year.
Those most likely to face difficulties
are small, research-stage companies that have no products or profits.
Large, profitable biotechnology companies
such as Biogen, Amgen, Genentech and Genzyme aren't likely to face the
same pressures because they can rely on revenue from products to fund operations
and new drug development.
A majority of the 379 publicly traded
biotechnology companies in the U.S. are unprofitable.
That means many in the group will
be hard-pressed to raise the cash needed to fund drug development.
"Until you have a drug on the market,
you don't have much cash to invest in research and development," said Scott
Beardsley, managing director of biopharmaceuticals investment banking for
U.S. Bancorp Piper Jaffray.
Analysts say Seattle-based Zymogenetics
will be a key bellwether for the biotech financial climate in coming months.
It filed a registration for a $180 million initial public offering one
day before the attacks on New York and the Pentagon. Analysts will watch
to see whether it follows through on the plan and whether it can raise
as much money as it hopes.
Poor market conditions and difficulties
in raising cash this year already have prompted some biotechnology companies
to take action to protect reserves.
Beardsley said he thinks genomics
companies focused on drug discovery will "find access to financial markets
to be limited for three to 15 months."
Shares of such companies, including
Deltagen and Arena Pharmaceuticals, have dropped significantly since last
year as investors turned to larger companies with products on the market
or in late-stage development.
Deltagen shares have dropped 74 percent
since last year, and Arena Pharmaceuticals have fallen 72 percent.
Now that markets have reopened, some
biotechs could face more pressure.
The biotech-financing market "has
very much closed," and the terror attacks have "put an extra lock on it,"
said Stefan Loren, an analyst with Legg Mason Wood Walker.
"I think the big-money investor,
the big funds that need liquidity, will go to big-cap companies," said
David Saks, chief investment officer of the $15 million Saks Medscience
Fund.
Copyright © 2001 The Seattle
Times Company
By Angela Zimm
Bloomberg News