Venture capital funding has dried up. The result is ‘Unprecedented’ Biotech Bankruptcies.

The global economic crisis has cut funding for biotechnology companies to the lowest level in a decade, triggering bankruptcies and threatening development of drugs based on biomedical breakthroughs.

In the past month, at least five biotechnology businesses have sought bankruptcy protection, according to company news releases, and others may be heading toward a similar fate. Those at highest risk have experimental compounds moving into costly human research. Peptimmune Inc., a 6-year-old closely held firm, says it’s struggling to pay for clinical trials of its promising multiple sclerosis drug.

The amount raised this year by biotechnology companies fell by $9.7 billion through September, or 54 percent, compared with the same period in 2007, according to Burrill & Co., a life sciences investment bank in San Francisco. That may mean work on dozens of potential treatments will stall or die as companies fire workers and shelve early research projects, industry executives and investors said.

“I’m looking down the barrel of a gun,” said Peptimmune’s Chief Executive Officer Thomas Mathers in an interview. The Cambridge, Massachusetts-based company’s cut staff by more than half to 22 people, moved to smaller offices to conserve the $6.5 million on hand and is delaying research on new drugs for Alzheimer’s disease and Parkinson’s, Mathers said.

Biotechnology companies in the U.S. are raising less cash than they have in a decade, according to Burrill, which tracks investment in the life-sciences industry. Financing fell to $8.2 billion through September, from $17.9 billion last year. Venture capital funding fell 16 percent, to $2.9 billion.

“For the first time in the history of the biotech industry, you’re going to see unprecedented levels of bankruptcies and dissolutions,” said David Strupp, managing director in the life sciences group at Canaccord Adams, a research and investment bank in New York. “This all will play out in the next six to nine months.”

The most likely companies to seek bankruptcy are those with less than six months of cash on hand, just a few drugs in development and no definitive clinical data to attract a funding partner, said Andrew Busser, principal at Symphony Capital, a New York-based investment fund. Twenty-five percent of the 370 public U.S. biotechnology companies have less than six months of cash, according to data compiled by the Biotechnology Industry Organization, a trade group in Washington, D.C.

Deflation strikes another victim. This is not all bad news. Money will be more selective and flow to the companies that are the most promising.

Mike “Mish” Shedlock
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