Companies feeling acute credit crunch pain

Analysis

The credit crunch and current turmoil on the world’s stock markets means the chances of many development stage pharma and biotech companies raising the cash they need to fund inherently risky projects is rapidly diminishing.

For some companies the pain of the crunch is likely to be acute, as they face an immediate need for cash. The analysis presented below, using EvaluatePharma’s Peer Group Analyzer, reveals an unlucky 13 companies which are expected to go into the red by the end of this year, unless they act swiftly.

  Cash - YE 2008 ($m) Net Income - 2008 ($m) Market Cap ($m) Latest cash ($m) Latest debt ($m) Enterprise value ($m)
  Genta  (48)  (801)  12  16  (755)  751
  Cardium Therapeutics  (11)  (30)  80  4  (3)  79
  Critical Therapeutics  (9)  (30)  8  11  0  (3)
  GTC Biotherapeutics  (9)  (25)  39  12  (9)  36
  Hana Biosciences  (9)  (24)  20  9  (5)  15
  Æterna Zentaris  (7)  (54)  39  25  (1)  15
  VIA Pharmaceuticals  (7)  (31)  20  13  (0)  8
  XTL Biopharmaceuticals  (6)  (16)  109  8  0  101
  Advanced Life Sciences  (5)  (24)  31  9  (6)  28
  Repros Therapeutics  (3)  (29)  77  14  0  63
  Avalon Pharmaceuticals  (2)  (23)  7  12  (6)  1
  EpiCept  (1)  (25)  57  1  (8)  64
  Cell Therapeutics  (0)  (80)  15  39  (205)  181

Bail out options: trade sale

With bank loans and the equity markets no longer a viable option, especially for those companies that have seen their share prices significantly eroded this year, the respective management teams are probably looking for more innovative ways out their current plight.

Whilst a trade sale will always be the best solution, especially for long-suffering shareholders, the problem for most of these companies will be convincing a partner they are worth it.

Although Critical Therapeutics appears to have scored the best option through a merger with Cornerstone BioPharma, due to close in the fourth quarter, the relief may prove short-lived as Cornerstone’s immediate future is less than secure with just $4m in the bank by the end of this year.

Bail out options: restructure existing deals

If a trade sale cannot be secured, many companies are now looking to see how cash can be extracted from their existing product deals, such as forgoing future milestones and accepting reduced royalties in return from some much needed cash upfront.

XTL Biopharmaceuticals' agreement last month with Presidio Pharmaceuticals to extract an extra $2m for reduced future revenues is just such an example.

Bail out options: fire sale, then shut up shop

If, after going through the standard process of laying-off staff to reduce cash burn is still not enough, most companies will be forced to sell off their prized assets such as pipeline drugs, platform technologies and even office buildings, just to keep afloat.

However, some companies, such as Genta which has been fighting to keep its head above water for a couple of years now, should probably just accept their demise and return what little cash they have left to their shareholders.

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