Funding woes leave biotechs at risk of going to the wall

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The recent market wobble has already thrown some fundraising plans for the loss-making sector off track. If the trend continues, some businesses could be forced to close down, restructure or merge to survive.

"I wouldn't say the [funding] window is definitely closed right now, but there is no doubt the turbulence has made fund managers more jittery," said Samir Devani, the Nomura Code Securities analyst who published the report. "If it closes, there would have to be more mergers and acquisition and more companies folding."

No fewer than 19 of the 70 public biotech groups in the UK and mainland Europe have two years of cash or less, and five have less than six months of cash remaining. Fewer than 10 groups, said Mr Devani, have enough in their coffers to last them until they turn a profit.

Biotech companies lead hand-to-mouth existences because investors view the sector - populated by small, loss-making groups - as risky and so usually limit the sums they are prepared to put in. "Investors, especially in Europe and the UK, tend to drip-feed the companies," said Mike Booth, an analyst at bank Canaccord Adams. This creates a funding cycle in which most companies must raise new cash on a regular basis. So when the market tumbles, they are vulnerable. Vectura, an inhalation-technology group, called off a secondary offering last month amid tepid demand.

Companies with interesting products in their pipelines could be snapped up by large pharmaceutical players, which have become increasingly willing to acquire smaller groups to fatten their product portfolios. Astra-Zeneca, for example, splashed £702m to buy Cambridge Antibody Technology last month.

"Sell in May and go away has never been truer," said Mr Booth.

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