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Small public biotechnology companies, many of whom have been hanging on for dear life since the Wall Street meltdown in September, are finally buckling under the strain. In one week, the industry saw bankruptcy filings by Biopure Corp., the maker of a synthetic blood product, and Oscient Pharmaceuticals Corp., a company with two approved drugs already on the market.
Epix Pharmaceuticals, a company with a potential treatment for Alzheimer’s disease, filed an Assignment for the Benefit of Creditors, a state process to liquidate assets.
“We are seeing a fair amount of winding down. We are probably seeing the worst of it now,” said Lawrence Wittenberg, a life sciences attorney at Goodwin Procter LLP. Wittenberg and other observers say the financial system has chosen the biotech winners and the losers over the last few months. Now the losers are facing the consequences.
The extent of biotechs’ desperation can be seen in the worsening terms of fundings, the shrinking amounts of those deals — many in the past quarter were worth $1 million or less — or worse, no deal at all. Several of the companies researched for this article had less than $5 million cash on hand at the end of March and some have received no additional funding since then. Analysts say additional bankruptcies are possible and other, quieter closures are likely.
“I have some companies that are having trouble making payroll each week,” said Mike Bevilacqua, a Burlington-based director at the accounting firm McGladrey & Pullen in an interview several weeks ago. Bevilacqua said the companies are going to extreme lengths to conserve every dollar. “At a meeting, a company executive apparently asked another accountant here if that was his own paper clip, because if it belonged to the company he wanted it back,” Bevilacqua said.
The prolonged financial strain is more than a distraction: It has slowed or stopped some promising treatment advances as companies struggle to stay afloat.
“If we had $10 million, we would be at the finish line,” Pro-Pharmaceuticals Inc. CFO Anthony Squeglia said. The company has a late-stage drug target called Davanat that has shown promise to extend the life of people with end-stage colorectal cancer. The company had just $861,000 in cash on hand as of March 31. Since then it has raised an additional $1.4 million as part of a previous deal with 10X Fund LP.
Pressure Biosciences Inc., which makes instruments designed to speed up cell-based drug discovery, had $2.1 million in cash on hand at the end of the first quarter, but CEO Richard Schumacher said the company can hang on for another year. That calculation is based on the fact that the company has reduced its cash burn to $600,000 from $1.3 million per quarter, and has some options related to debt redemptions and government money it is looking at. Schumacher notes, “We don’t have the bandwith to do what we want to do,” but says the company will survive.
One option for companies is to wind down operations quietly, without an expensive process like a bankruptcy or an assignment of benefits to creditors. Companies with fewer than 300 stockholders can decide to stop filing financial statements. Generally the company is bumped off the stock exchanges and the company “goes dark.”
“It’s very unusual for a company to come back from that,” Wittenberg said.
One example of this is Panacos Pharmaceuticals Inc., which was working on three early-stage programs targeting HIV. The company filed what’s known as a Form 15 to stop filing with the SEC in March. By May, the company had vacated its Watertown headquarters, according to a source familiar with the situation, and has since gotten out of its lease. According to a former executive at Panacos, the company has four people on staff as it tries to sell off assets. Panacos had $80 million in the bank in 2005, according to the former executive, but encountered a series of management missteps.
Calls to Panacos were not returned.
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