With worried eyes on shrinking cash reserves, Connecticut’s biotech companies are looking to the proposed federal stimulus package as a much-needed lifeline for their capital-starved industry.
Biotech received a bit of good news when the House version of the stimulus bill included a $3.9 billion funding boost for the National Institutes of Health and an additional $3.4 billion for research infrastructure. And as the Senate scrutinizes provisions of the House bill, which swelled close to $900 billion, Connecticut’s life science community is touting the stimulating effects of R&D funding.
“It would be protecting jobs and creating jobs,” said Kevin Rakin, chief executive officer of Wesport-based Advanced BioHealing. “There’s a crisis going on in the biotech and medical technology communities.”
When the economy took a nosedive in September, capital available to early-stage biotech companies virtually dried up. The situation for many of these companies, which depend heavily on multiple rounds of funding for research and development and clinical trials, became especially dire.
CURE’s Warning
In a letter to Congress last month, members of Connecticut United for Research Excellence, which represents the state’s life science cluster, spelled out just how bad things are.
Funding for small biotech companies dropped by nearly 60 percent last year, compared with 2007. About one-third of small public biotech companies are operating with less than six months of cash-on-hand and nearly half have less than one year of cash remaining, according to the CURE letter dated Jan. 9.
The virtual shutdown of the initial public offering market has all but eliminated the option of raising cash through stock sales, traditionally a major source of funds for emerging biotech companies. Many U.S. companies have gone bankrupt — though none so far in Connecticut.
“We fear that if no action is taken by Congress to address the crisis facing small biotech companies’ restricted access to capital in any stimulus package, more bankruptcies will occur — some in Connecticut,” the letter stated.
Facing a grim economic picture, companies who were fortunate enough to acquire funding before the market tanked are desperately holding onto cash as long as they can. Rakin, whose company has one drug on the market and received $30 million in Series C financing in 2007, has scaled back research programs and is “treading water” until the crisis subsides.
Suffering Spreads
Jim Baxter, senior vice president of development for Boehringer Ingelheim Pharmaceuticals, said although the financial crisis has not had an immediate effect on the company’s internal R&D efforts, it could seriously impact the smaller biotech companies that Boehringer Ingelheim looks to partner with on research efforts.
“To the extent that the Connecticut biotech world is compromised, then BI and other larger companies in Connecticut also suffer,” Baxter said. “A shrinking of the biotech landscape in Connecticut could affect BI’s partnering opportunities with Connecticut companies.”
Rakin said he has started to notice that medium-sized biotech companies are not partnering as much with early stage companies. Just last week, he turned down partner requests from four companies.
“We don’t have deep pockets,” he said. “We’re looking to break even right now.”
Some R&D assistance from the stimulus package could, in the very least, secure a very shaky job situation and allow companies to pursue research programs, said David Scheer, president of Scheer & Co., a New Haven-based life sciences advisory and venture capital firm.
In the long term, the further growth of the biotech industry in the United States will create high-paying jobs that would be difficult to be outsourced overseas, he said.
“These are job that are high quality, and relatively recession proof,” Scheer said. “They are not making widgets — these are jobs that can give rise to products and revenue streams in an industry where we’ve been traditionally extremely competitive.”