Biotech financing hurt in downturn

Biotech has never been a boom industry, but even the slow financial pace has come to a near standstill this year, particularly for the Washington, D.C., region’s smaller biotech companies, the Washington (D.C.) Business Journal reported last Friday.

Nearly a dozen of the D.C. area’s publicly traded companies have seen their valuations discounted to penny stocks, and a handful of those have received warnings that they might be delisted from the Nasdaq Stock Market if their share values do not rise.

Private investment has been no better. Total private financing in the D.C. area for biotechs last year amounted to $158 million, 3 percent of the $5.2 billion nationwide, according to PricewaterhouseCoopers MoneyTree.

Some point to the credit crunch as the source of these problems. Others say this is just the latest plunge in what has been an up-and-down funding cycle for biotech companies.

Either way, the current climate adds more difficulties for biotechs already burdened by longer clinical testing timelines, tougher federal regulations and business plans whose prospects for substantial revenue are far into the future. To survive, publicly traded biotechs must turn to methods such as bargain stock sales and reverse stock splits to raise money.

Though their best option is appealing to Nasdaq for more time, companies also are considering increasing their share prices through reverse stock splits, which reduce the outstanding shares to make each more valuable. Reverse stock splits immediately boost a share price; they do not protect shares from being even further devalued if a struggling economy pulls the price down again.

The other financing option is selling shares as they are and raising money at lower values than previous rounds, but that dilutes the ownership. Some Washington, D.C.-area companies are starting off by cutting expenses and seeking partners.