Got plenty of cash? Market carnage sets up a Darwinian showdown in biotech

Print 19 February 2016
John Carroll / FierceBiotech

These days, when you talk to a biotech CEO, it's not unusual for the conversation to turn to just how much cash they have in the bank, and just how far out that runway extends in covering costs.

For Cellectis ($CLLS) CEO Andre Choulika, the magic number is $228 million, which is what the Paris-based biotech raised last year, the third year of a biotech bonanza that created heady--some would say occasionally foolish--valuations across the board.

"The impact on biotech is pretty harsh," Choulika told me at the BIO CEO meeting in New York last week while discussing the market meltdown. But, he quickly added, his company has enough cash on tap to back its work in Paris, New York and London for three years.

Not everyone, though, is in the same boat.

The general market is suffering from a downtown. But in biotech, the grizzly bears have been let loose, forcibly kicking new IPOs in their financial knees (all four biotech IPOs in recent weeks are now trading below their initial price), while virtually eliminating the possibility of a new raise to keep the money flowing. While still a new situation--subject to a quick reversal if biotech shares start to rally and IPOs make a comeback--the swift turnaround from the rock 'n' roll era of the past three years has shaken the industry to the core.

Atlas Venture's Bruce Booth did the math, concluding that 74% of the 142 biotech IPOs launched in the last three years are now trading below their launch prices. And their stocks are down a median of 35%.

MarketWatch notes that anywhere from 50 to 70 biotechs are trading at a value that's less than cash on the books. That group can include penny stocks like Eleven Bio ($EBIO), now on life support after back-to-back failures of its lead drug left its market cap just north of $5 million.

Then there is MannKind ($MNKD, now trading under $1), which gambled big on Afrezza, only to see the product fail after its arrival on the market. It's in a group of 5 battered biotechs which Reuters has reported is out looking for a buyer. The rest of the fast-falling 5: Sagent ($SGNT); Alimera ($ALIM); XenoPort ($XNPT) and Pernix ($PTX).

Unable to raise money in this market, this could simply be the leading edge of companies that will be under considerable stress, setting up the chance of a fire sale--if there's enough left at these companies to coax a bid. Reuters highlights Mallinckrodt ($MNK) and Horizon as two cash-heavy companies in a position to buy. But you could also add Gilead ($GILD), Biogen ($BIIB) and a number of Big Pharmas that have been waiting out the run-up.

Biotech has been in this place before. The four years after the 2008 financial crisis was a dark time for biotech IPOs and offerings. But the industry endured, fed a regular diet of venture cash. And VCs have been stocking up on funds as well, with most ready to ride out the storm, just as many biotechs have done.

"After the rain, the sun," says Choulika, a natural optimist who's predicting better times ahead after the downturn passes. But the forecast for now remains dark and stormy.

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