European drug research projects hit by cash crisis

European biotech companies face a cash drought that could jeopardise hundreds of drug discovery projects.

European biotech companies face a cash drought that could jeopardise hundreds of drug discovery projects.

Although last year saw an unprecedented boom in fund- raising for fledgling biotech companies and other research projects, this year has seen the good times grind to a sudden halt. Particularly hard hit has been the flow of market flotations. At least 20 were planned for the first half, but only four went ahead. And the outlook is even more bleak.

Analysts are warning that European biotech companies need to rapidly rethink their financing plans, or face extinction. In a six-monthly report on the life sciences industry, Ernst & Young has warned that with the flotation door shut, the next opportunity to raise serious sums of money on the market could be years away. The worst hit, claims the E&Y report, were the European biotech companies, whose 15 per cent share of the global $39bn (£27bn) investment in biotech last year remains significantly smaller than their US counterparts.

Meanwhile, biotech companies need to spend even more money just to survive in an increasingly competitive environment. The completion of the Human Genome Project and the emergence of the new research areas of antibodies and proteomics have revealed massive potential for biotechnology. But they also represent huge black holes for research cash.

One major drain on companies' resources is the computing power needed to process the huge volumes of data produced during research. "Companies have seriously neglected the need for major computing power, and it will end up costing them tens of millions," said Jeff Augen, a director of IBM's life sciences division. That recalculation blackens many finance directors' plans, and many European players are not expected to survive.

Dr Sally Bennet, a biotech analyst at ING Barings, has suggested that one way to assess the status of biotech companies is by calculating how many months of cash they have left. Many European companies including Genset, Xenova and Neurosearch have fewer than 18 months left.

In a desperate bid to survive, biotech companies are expected to adopt a variety of methods to scrape cash together. Although larger companies should find some support from private capital, those lower in the pecking order are predicted to resort to out-licensing intellectual property, joint ventures and, ultimately, a round of consolidation.