NMT fundraising boosts hopes for ailing biotechs

Cash-strapped industry may get new lease of life from investors willing to bet on speculative drug projects
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The Independent Online

Cash-strapped groups in the biotechnology and healthcare sectors are wondering if there is a new willingness by stock market investors to put money into their speculative ventures, with many believing the "funding window" will be open again early next year.

Optimists were yesterday hailing the success of NMT, which has developed and begun marketing a retractable syringe, which said it was raising £15.8m from a placing of new shares, and launching an open offer which could potentially raise as much again.

The results of NMT's fundraising will be closely watched. The cash is needed to get the company through to profitability, but the 18-for-10 open offer will raise cash "towards further development of NMT's second generation syringe technology". Its success would highlight shareholders' willingness to back further speculative projects.

It would also prove a boost for biotech groups such as Antisoma, the cancer specialist, which is trying to raise up to £15m after burning cash on the expensive clinical trials that are essential to proving a potential drug's worth. Other biotechs needing cash next year include Xenova and CeNeS Pharmaceuticals which, on last year's burn rate, would be penniless in a year. Antisoma's failure to attract support for a fundraising has left it having to cut jobs and mothball development projects to extend its life expectancy.

For the time being, the conditions being demanded by fund managers that are willing to back a management's development plans remain punishing. NMT's new shares were issued at 4.5p, a 22 per cent discount to the price on Wednesday and 60 per cent below their level when the company said it would be looking to raise emergency cash. The placing will be hugely dilutive, increasing the number of shares in issue by 180 per cent.

ING Charterhouse's biotech analyst, Sally Bennett, said: "What we mean by a funding window is an opportunity to raise cash on good terms. Of course, outside the window it is possible to raise cash, but on pretty dire terms. PPL Therapeutics, which raised £30m recently, must wish that if it had done so a year earlier at a significantly higher price and with less dilution to shareholders."

Ceri Morgan, analyst at Beeson Gregory, believes healthcare companies such as NMT, which produce medical devices and are seen as less risky ventures than early-stage drug developers, will be the first to witness an upturn in interest from investors. More speculative biotech ventures, where the rate of failure of potential drugs, is high, may have to wait longer.

"Fund managers need to be reassured that they are not throwing money after pie in the sky ideas. They want concrete evidence," she said. "We think it will take six months for the window to open for biotech drug companies, because of where the companies are in their clinical trials. The companies have come a long way, but investors want to see projects moving on to Phase II or Phase III clinical trials, and that companies are well diversified, with a number of products in the pipeline."

Investors' attraction to defensive stocks during the bear market could be beneficial, according to Sir Christopher Evans, the biotech entrepreneur who runs Merlin, a venture capital backer of the industry. "Fund managers have been putting their money into pharmaceuticals, but they know that the large pharma companies are looking for new products to sustain their growth. There is only one place for them to get the products, and that is the biotech sector," he said.

Last week, Powderject Pharmaceuticals was forced to admit it might not sell its needle-less syringe technology by next March as planned because of the effective closure of the equity markets to drug technology firms. Potential buyers needed to tap shareholders for funds to buy the business and also to fund development, and interest has waned. But Paul Drayson, Powderject's founder and the chairman of the BioIndustry Association, believes sentiment might be improving.

"The funding window is never totally shut, and it is never totally open, but there has always been a waxing and waning of investor appetite," he said. "It is a nebulous thing to grasp and chief executives like me take a lot of time talking to investors and taking time to judge the mood. It isn't really crystallising yet but there are signs that things are getting better. It is still quite fragile."

The thawing of sentiment may have something to do with the market bounce that has come since late September, which has swept biotech and healthcare stocks up with it. FTSE's new techMARK Mediscience index has surged 40 per cent since the trough. The index is still 40 per cent lower than at the start of the year, though. A biotech industry report published last week found that only 4 out of 20 flotations planned for this year have taken place.

Sir Christopher says Merlin has lined up at least two of its investee companies for flotation late next year, and Ms Bennett predicts the opportunity for new initial public offerings will be open by at least next summer.

"The last window came after the mapping of the human genome, which kick started interest in any companies involved in genomics or proteomics," she said. "There is traditionally about a couple of years in the cycles, so it may take another six months for the opportunity to return."