LOS ANGELES, May 5 (Reuters) - More biotechnology companies worldwide are likely to sell themselves or go out of business than in past downturns due to a lack of financing opportunities, according to a report released on Tuesday.
Ernst & Young’s annual “survival index” shows that 162 publicly listed biotechnology companies, or 44 percent of the total, had less than a year’s worth of cash on hand at the end of 2008, up from 25 percent a year earlier.
The consulting firm said its annual review typically indicates that about a quarter of the companies fall into that bottom category, but the names rarely carry over from one year to the next because biotech firms were readily able to secure financing from a range of sources.
Those sources, however, have dried up amid the latest financial crisis.
“This time around we have a much deeper, more systemic financing crisis,” said Glen Giovannetti, global biotech leader at Ernst & Young. “The recovery won’t come fast enough for some companies.”
He said some hedge funds that specialized in biotechnology have folded, while others, which had relied on banks to lend money for investments, no longer have access to that cash.
As a result, smaller biotechs are putting themselves on the block and, if they can’t locate a buyer, will likely go out of business, according to the report.
Bigger pharmaceutical firms are looking to beef up their drug pipelines, but that does not mean every smaller cap company will find a suitor.
“Just because it’s cheap, doesn’t mean it’s a deal,” Giovannetti said. “Misallocated resources and distracted energies are no bargain at any price.”
Despite the funding gap, the Ernst & Young found that the industry’s overall health has actually been on the upswing.
Revenues of publicly traded biotechs grew 12 percent to $89.7 billion in 2008. The global industry’s net loss improved 53 percent, from $3 billion in 2007 to $1.4 billion in 2008 and the U.S. industry reached aggregate profitability for the first time ever, according to the report. (Reporting by Deena Beasley; Editing by Richard Chang)
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