Limited access to fresh capital and a recent string of failed clinicaltrials has made this a particularly trying time for many biotechnologycompanies."The seriousness of the cash squeeze is one that probably has neverbeen seen in the biotech sector," David Webber, an analyst with Alex.Brown & Sons Inc., told BioWorld. "Recognition of that is forcingmore dramatic strategic choices by management."This week Repligen Corp., without any new negative news, said it iscutting back its work force to 190 from the 301 employees it hadMarch 31. It also announced it was dropping development of an HIVvaccine program. Last week, Glycomed Inc., in an effort to cut its burnrate in half, reduced personnel 30 percent and narrowed itsdevelopment focus. Also this month, both Synergen Inc. and RibiImmunoChem Research Inc. saw their stocks fall nearly 50 percent theday disappointing trial results were released.Over the past four months, the stocks of a dozen or so companies tookhuge falls on the days of announcements. (See the chronology ofevents on this page.) At least two companies got hit despite news thatwasn't entirely negative. Amylin Pharmaceuticals Inc.'s stock fell 33percent on mixed trial results, and Alpha-Beta Technology Inc.dropped 42 percent when it said it was going to delay the start of aPhase III trial."We've had a number of disappointments over the past few months,Carol Werther, an analyst with Cowen & Co., told BioWorld. "Peopledon't want to hold companies that don't have earnings when the overallcapital markets are uncertain."Both biotech indices, which are used to track a cross-section of theindustry, had big drops this year. The AMEX Biotechnology Indexdropped 31 percent over the first six months of 1994, and the CBOEBioTech Index fell by 28 percent.Eric Hecht, an analyst with Morgan Stanley & Co., told BioWorld,"The industry got ahead of itself in terms of ramping up infrastructureand costs prior to having concrete revenue opportunities. In the past,the biotech industry functioned on much lower burn rates. With thenumber of failures we've seen, and the investor interest waning, we'regoing to continue to see restructuring, outlicensing of products andprioritization of products in development."In addition," Hecht said, "companies will be held more accountablefor what they're spending money on and how they're spending money.They'll need to prepare for less capital flowing into the sector."Hecht said, "There are so many companies out there, and the capitalneeds are so large, that this sets up the possibility of consolidationthroughout the industry." That's a view shared by other analysts."Partly merger, partly acquisition and partly attrition," Webber said.Michael Hildreth, the Northern California director for Ernst & Young'slife sciences practice, attended the International Life SciencesPartnering Conference in San Francisco this week. He said he didn'tsee signs that large pharmaceutical companies were looking to acquirebiotechnology companies, but he said they would like to see somemergers within the biotechnology industry, particularly if it cuts downthe number of companies developing drugs for each disease state.Hildreth said the recent restructuring by biotech firms, and their drop invalue after failed trials, isn't so out of the ordinary in a industry of thatsize. "What's possibly unusual is the compressed time the news hascome in," he said."It's a maturing industry. These companies are coming to the criticalpoint of their development when they have to fish or cut bait," Hildrethsaid. "There's not an unlimited supply of capital, so companies arecoming to the critical decision points when they have to decide whichprojects go forward."Werther said the group traditionally fares better in the fall, with thearrival of more medical meetings. But she isn't sure if this fall willprovide financial relief for the biotechnology industry. Werther said itwould go a long way toward helping the sector if some of thecompanies with news expected later this year have positive results toreport.And although it's not clear when the financing window will reopen,something is going to have to give, she added."A lot of these companies' cash balance is probably adequate to fundcurrent programs for less than two years," Webber said.Hildreth, however, said the recent cutbacks and setbacks were a"natural evolution, and certainly we remain bullish on the promise ofthe industry. We expect to see many good things in the coming years."n
-- Jim Shrine
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