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Biotech Stk Fundings Offer Signs Of Hope In Struggling Sector

DOW JONES NEWSWIRES

By Thomas Gryta
Of DOW JONES NEWSWIRES


NEW YORK (Dow Jones)--Jazz Pharmaceuticals Inc.'s (JAZZ) raising of $7 million in a private placement is the latest sign of hope for the hundreds of biotech companies struggling to find cash for their survival.

"We have seen early signs of the [biopharma] funding environment coming back," said Annette Grimaldi, managing director of life-sciences investment banking at Jefferies Group Inc.

While equity financing for biotech companies has improved since last year, the pace remains far those of behind previous years. Plus, the market is being picky as to which companies it is giving access.

Overall, corporate financing has eased in general, but the biotechnology sector has a higher need for that cash than other industries because its drug-development model often requires years of losses before a product is approved.

The recession and tight credit environment have left many biotech companies vulnerable. As of the beginning of the year, 40% of the 330 publicly traded biotech companies in the U.S. had less than one year of cash, according to the Biotechnology Industry Organization.

Fortunately for them, equities financing for the current year is on a better road, according to data compiled by Jefferies, with 10 follow-on stock offerings raising $1.2 billion so far, compared to just 13 in all of 2008 raising $1.4 billion.

Those numbers, though, pale to more lucrative times such as 2007 when companies had 44 such offerings that raised more than $5 billion.

In tough markets, Grimaldi noted, issuers have traditionally favored private financings, using registered direct stock offerings or private investment in public equity, called PIPEs, because they don't want exposure to a public marketing process.

There have been 30 registered direct stock offerings in 2009 so far, compared to 28 in all of 2008, but PIPE offerings are less common as investors don't want to be left holding unregistered shares, which are less liquid.

Recent strength in the equities markets has helped the funding increase, as well as pent-up demand from issuers that desperately need cash.

Jazz, for example, had missed three interest payments on $119.5 million in debt due in 2011, and some analysts noted a risk of bankruptcy prior to Tuesday's news.

The improvement in the stock market since the March lows has companies more comfortable with tapping the equities market, said Ben Perkins, managing director of life-sciences investment banking at Pacific Growth Equities.

"Boards are feeling better about not financing at the low," Perkins said. "Folks believe there is some stability."

But there is still uncertainty as to whether the recent funding improvements are part of a trend, or simply a window of opportunity for companies to find buyers for their shares.

Other than Jazz, biopharmaceutical companies including Genta Inc. (GNTA), Immunogen Inc. (IMGN) and Halozyme Therapeutics Inc. (HALO) have raised money in the equities markets in recent weeks. Late Tuesday, Arena Pharmaceuticals Inc. (ARNA) and Xenoport Inc. (XNPT) both disclosed plans for stock offerings.

Despite the apparent improvement, Grimaldi warned that a macroeconomic setback could reverse the trend.

"There is a sense that this could be a fragile recovery," she said, which also increases the enthusiasm for companies to tap the market.

But the funding increase doesn't signal open access to all comers, she warned, as there is a general preference for companies with a market value exceeding $500 million and which have had some recent good news.

Although the difficult funding environment has increased pressure on smaller companies to cut deals, Grimaldi said she doesn't expect any improvement to hurt deal making.

This is because the larger players still need to bolster their product pipelines and tend to focus on attractive science and product development, rather than simply finding a good deal.

Perkins noted that an improved funding market should provide a slight negotiating leverage to the smaller companies, because they won't be forced into a deal to survive.

-By Thomas Gryta, Dow Jones Newswires; 212-416-2169; [e-mail]

Copyright (c) 2009 Dow Jones & Company, Inc.

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