More MS news articles for Sep 2001

Biotechs will find capital even harder to get after attacks

Business & Technology : Tuesday, September 18, 2001
By Angela Zimm
Bloomberg News

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