Replies to post #72202 on Biotech Values

[DewDiligence]

Today’s other big biotech loser: CRXL, off 13% on the loss of WYE as a suitor.

[DewDiligence]

(ALTU) Investing Slowdown Is Hurting Massachusetts Biotechs

[This write-up is from today’s Boston Globe, which will evidently stay in business after all despite its being a huge money loser for its parent company, the NY Times.]

http://www.boston.com/business/healthcare/articles/2009/05/09/investing_dropoff_hurting_biotechs/

›By Scott Kirsner
May 9, 2009

Three years after Altus Pharmaceuticals Inc. went public and raised $105 million in a single day, the Cambridge biotechnology company is running out of money, and its stock, which once traded for more than $25 a share, closed at 40 cents yesterday.

With the economy lagging, investors have become wary of the risks associated with innovative but small drugmakers like Altus, which can spend a decade or more working on experimental treatments that often don't make it to market. That's left some biotechs starving for cash.

In an effort to survive, Altus in January shed 75 percent of its workforce[#msg-35082269] - 107 employees - and narrowed its focus to a single drug, an injectable human growth hormone.

"We thought that was our best shot," said chief executive Georges Gemayel.

The dropoff in biotech investing could hit Massachusetts particularly hard. Governor Deval Patrick, who championed a $1 billion life sciences initiative approved by the Legislature last year, has made the industry a key part of his economic development plans. By most rankings, the state's cluster of biotechnology companies is second in size only to the San Diego area.

"Biotech is the antithesis of what the global market is looking for," said Steve Holtzman, chief executive of Infinity Pharmaceuticals Inc., another Cambridge biotech. "The market is looking for safe, secure, liquid assets."

Holtzman knows firsthand how fickle investors are these days - Infinity's stock recently lost almost one-third of its value after it abruptly halted a test of a key cancer drug it was working on when researchers found a higher-than-expected death rate among patients.

A recent report from the Massachusetts Biotechnology Council found the number of biotechs in the state increased to about 400 [!] over the past seven years, and the number of employees increased from 30,000 to 40,000. But the report also warned that half of the state's publicly traded biotechs are in danger of running out of cash before the end of the year, and that one-third to one-half will probably be forced to raise more money in 2009 so they can continue to operate.

"We were in a very permissive financial environment with cheap money and easy credit, and we're now in a very stringent financial environment that makes biotech companies extremely difficult to finance," said Rich Aldrich, a Boston biotech investor who was involved with one of the industry's biggest recent scores - the IPO and eventual sale in 2008 of Sirtris Pharmaceuticals Inc., based in Cambridge, to GlaxoSmithKline plc, headquartered in the United Kingdom, for $720 million.

But lately, the venture capitalists who often bankroll private companies have been holding on to their money. Investments in New England biotechs during the first quarter of 2009 were down about $92 million from the same period last year, from $241 million to $149 million, according to Thomson Reuters. One reason is that some of Boston's biggest biotech venture capital firms have been having their own financing problems. For instance, Waltham-based Atlas Venture earlier this year collected a smaller pool of money than it had hoped for, and Oxford BioScience Partners of Boston recently suspended efforts to raise a new investment fund because of a dearth of investors. Oxford managing partner Jonathan Fleming said it's an "absolutely horrible" time for venture capitalists to raise money from pension funds, wealthy individuals, and university endowments.

Also, the large pharmaceutical companies that fund smaller biotech firms, buy them outright, or collaborate on sales and marketing are consumed by a wave of consolidation. For instance, Merck & Co. and Schering-Plough Corp. are planning to merge, as are Pfizer Inc. and Wyeth.

Big drug companies are "our customers," said Michael Gilman, chief executive of Stromedix Inc., a Cambridge biotech developing drugs to combat organ failure. "And to the extent that there are fewer customers, that's going to make things hard."

Because of its volatile nature, the biotech industry has traditionally been roiled by booms and busts. "In 1999 and 2000, you had the genomics bubble, when huge amounts of money were going into biotech," said Gilman. "The fundamentals of the business were no different then, but today, no one wants to put in a nickel. People were just jazzed about it then, and they're pessimistic about it now."

About the only good news biotech executives can point to are two governmental funding initiatives that could benefit Massachusetts over the long term. As part of this year's economic stimulus package, the federal government will increase funding to the National Institutes of Health by $10 billion. Boston academic institutions and hospitals tend to receive a disproportionate chunk of NIH research funding.

"That could counter some of the current mopeyness," said Gilman. "But that funding will be felt first in the academic sector - they'll get a boost pretty quickly. It'll take years for it to start to trickle into the start-up community."

In addition, the Massachusetts Life Sciences Center - which is charged with overseeing the state's life sciences initiative - has doled out about $42 million to research facilities, scientists, and private companies. Late last month, it announced a new batch of loans to seven early-stage companies, totaling $3.4 million.

And even in stressful economic times, some entrepreneurs and investors hope to find bargains amidst the products cast off by companies trying to stay afloat.

When Altus was in the midst of its layoffs earlier this year, it essentially abandoned an experimental drug called Trizytek, intended to treat enzyme deficiencies that often plague people with cystic fibrosis or chronic pancreatitis. A new Cambridge startup founded by Alex Margolin, formerly chief scientific officer at Altus, acquired Trizytek without making any up-front cash payments [nice deal!]. That company, Alnara Pharmaceuticals Inc., had earlier raised $20 million from investors, and hired several people who lost their jobs at Altus.

Margolin estimated Altus had invested about $150 million in the drug, which he anticipates will win FDA approval. "The ending hasn't been written yet," he said. "But we hope it will be a Hollywood ending."‹

[DewDiligence]

ALTU filed for bankruptcy under Chapter 7 yesterday:

http://sec.gov/Archives/edgar/data/1340744/000129993309004508/htm_35108.htm