Biotechs Enter a "Dark Age" as Cash Runs Out

(MoneyWatch)  Twenty-three biotech companies have pulled their planned IPOs this year, according to The Burrill Biotechnology Report. The companies are now looking for partnerships with Big Pharma or to be acquired. The situation is essentially a race against time for dozens of companies as they try to find new funding before going bankrupt. In the past month, at least five biotechnology businesses have sought bankruptcy protection.

Examples of the new "dark age" that has come upon biotechs include:

• North Carolina biotechs are begging the state for $200 million in funding, but the governor there has made no promises and is dealing with a budget deficit.
• Almost 40% of small and midsize public biotechnology companies in the U.S. are in danger of running out of cash within a year and government help is needed to encourage investment.
• James Watson, managing director at Burrill & Co., warned that all financing is down. "It will be hard to raise any new money." Private equity transactions have fallen in number and value, along with the valuation of companies. The pace of partnering is slowing, from an average of 300 deals for the past three years to just half of that for this year and that number is not going to climb anytime soon.
• Dozens of biotechs that did go public are now trading below $1. They include Telik of Palo Alto, Avigen of Alameda, and two South San Francisco companies, Cell Genesys and Sunesis Pharmaceuticals. Avigen and Cell Genesys recently laid off most of their workforces as disappointing drug studies compounded the economic turmoil. Layoffs also hit workers at Exelixis and Cytokinetics in South San Francisco and Jazz Pharmaceuticals in Palo Alto.

In contrast, BNET readers know that large drug companies have been almost untouched by the credit crash -- they're sitting on piles of cash. With biotechs becoming more desperate by the day, expect fire-sale acquisitions for the companies with the most promising new products.