Back into the abyss: biotech hits funding crunch

Biotech companies, which have failed to raise enough capital to see them through to the next funding cycle, might expire as a funding drought sets in and blame "shocking" market conditions for forcing them to abandon or change their plans.

"We've plunged right back into the classic biotech abyss," said David Blake of industry newsletter Bioshares, which earlier this week identified 21 companies as having such poor cash positions their existence was in doubt.

Most recently hit was Melbourne's Epitan (ASX:EPT, ADR:EPTNY, XETRA:UR9) with the company suspending plans to raise £15 million (AUD$37 million) by listing on London's AIM stock market.

"There was nothing wrong with the company, nothing wrong with our story, the market just closed down," said Epitan CEO Iain Kirkwood. "While we got a fabulous reception in the UK and good press... as the market got more fickle, fund managers said: 'No more primary issues'."

Kirkwood believes that investors got "spooked" by bad press surrounding other biotech companies such as Prana (ASX:PBT) in the US. "It's a very soggy biotech sector at the moment," he said.

Epitan is one of the companies identified by independent investment newsletter Bioshares as having a precarious cash position in its recent 'survival index' survey. "They have a certain amount in the bank but they need to do further trials," said Bioshares' Blake.

Kirkwood said he was confident that Epitan had "cash in our balance sheet" and said that at the end of March the company had $7.2 million in the bank.

Epitan was hoping to raise capital for the next two to three years by listing on AIM, rather than in "bits and bites", said Kirkwood.

"We need somewhere between $20-30 million to finish the job. The London strategy was to try and get that in one go. We came frustratingly close," he said. "We still think we've got a great story. We still have a strategy for listing on AIM. We will return when the sun is shining -- unless we find a partner before the end of 2007. If a partner comes in, then we don't need any money."

In the meantime, Epitan will be looking at smaller institutional investment or a share purchase plan.

Epitan is still conducting trials of its UV skin damage reduction drug Melanotan, with a trial of a skin lotion due to start in London and trials running in Germany, Finland and Denmark for the second indication of the drug, which can be used for tanning.

Warning bells for Rockeby

Bioshares also names Rockeby Biomed (ASX:RBY) as a company for whom "warning bells" are ringing. The company had $1.2 million in cash at the end of the March quarter.

On May 2, the ASX asked Rockeby to answer various questions relating to its cash reserves which, if spent at the same rate as the March quarter, indicated that the company would only have sufficient cash to fund its activities for one more quarter.

In response, Rockeby said it had put in place "several initiatives" which it believed were "likely to lead to an injection of funds into the company", and that "[t]he company is currently taking active steps which aim to reduce its cash burn rate by approximately 20 per cent".

At time of writing, the company had not responded to a request for comment.

Underwriters fork out for Benitec

Benitec (ASX:BLT) was in the most dire position of the cash-poor biotechs, according to the Bioshares survey, having only $600,000 at the end of the March quarter.

But a recent $9.734 million rights issue, which closed on May 2, resulted in shares to the value of $3.45 million being allotted. The shortfall was underwritten by Bell Potter Securities.

"We were pleased that we did get the support from our underwriters," said Benitec Chairman Ray Whitten. "This is a company that is in a phase of going forward."

Benitec recently announced that it has identified a promising clinical candidate for its RNA interference-based therapeutic against the hepatitis C virus (HCV) and is on track to commence Phase I trials to treat HCV in the second half of 2006.

Life Therapeutics raises $2.3m

Life Therapeutics (ASX:LFE), formerly known as Gradipore, has successfully raised cash recently, with a recent share purchase plan raising $2.28 million before fees.

Chief financial officer John Manusu said the amount was the maximum the company could raise based on the 15 per cent limit imposed by the ASX.

He said Life Therapuetics was in a "different camp to anyone in the biotech market", because the company's earnings (before interest, tax and depreciation) for next year will be $10 million.

Manusu described the market conditions as "shocking". "Poor doesn't describe it," he said.

Other companies identified by Bioshares as sailing close to the wind include Proteome Systems (ASX:PXS), Australian Cancer Technology (ASX:ACU), Iatia (ASX:IAT), Psiron (ASX:PSX) and Living Cell Technologies (ASX:LCT).