Going for funding? Get a cash parachute, says Alchemia CEO

Biotech companies in the midst of new funding rounds should build an extra cushion of cash into their requests, warns Alchemia CEO Tracie Ramsdale.

The Brisbane drug discovery company head believes the impact of a recent succession of negative events will make investors skittish about topping up their contributions in future.

Alchemia, which has already raised $23 million since its 1995 launch, is following its CEO's advice. It is in the capital markets for another $10 million to $15 million to fund further R&D on its platform technology. That's more than it would have deemed necessary if the market was in a less sour mood.

Contributing to that mood are the accounting woes of Merck and Irish pharmaceuticals group Elan, a string of suspended clinical trials, and the general cloud hanging over corporate ethics and the US economy.

The doubts raised by Merck and Elan "will add some jitters to an already nervous market," Ramsdale said.

"We are badly in need of some good news. The whole sector has had a bad run of negative news this year which on top of the US economy and corporate governance is making investors even more nervous.

"We are of the opinion that it is uncertain how long the market will stay ugly. So it is best to be prepared [by a larger fundraising] to wait it out for longer than we would have liked."

The alternative - to stretch budgets by cutting R&D spending - is not a feasible option in the highly competitive environment of leading-edge biotechnology, Ramsdale said.

She also warned that start-up biotechs trying to conserve funds by leasing expensive equipment should brace themselves for tougher examinations from leasing institutions.

Alchemia was subjected to "much more due diligence" during its most recent round of leasing negotiations, she said.

Its leasing arrangements were successful partly because it has a four-year track record but smaller, younger companies with no leasing history "may face difficulties."