Bloomberg: Unprecedented Biotech Bankruptcies

We are still a long way from the bottom...

`Unprecedented' Biotech Bankruptcies Erupt Amid Finance Crisis

By David Olmos and Rob Waters

Nov. 21 (Bloomberg) -- The global economic crisis has cut funding for biotechnology companies to the lowest level in a decade, triggering bankruptcies and threatening development of drugs based on biomedical breakthroughs.

In the past month, at least five biotechnology businesses have sought bankruptcy protection, according to company news releases, and others may be heading toward a similar fate. Those at highest risk have experimental compounds moving into costly human research. Peptimmune Inc., a 6-year-old closely held firm, says it’s struggling to pay for clinical trials of its promising multiple sclerosis drug.

The amount raised this year by biotechnology companies fell by $9.7 billion through September, or 54 percent, compared with the same period in 2007, according to Burrill & Co., a life sciences investment bank in San Francisco. That may mean work on dozens of potential treatments will stall or die as companies fire workers and shelve early research projects, industry executives and investors said.

“I’m looking down the barrel of a gun,” said Peptimmune’s Chief Executive Officer Thomas Mathers in an interview. The Cambridge, Massachusetts-based company’s cut staff by more than half to 22 people, moved to smaller offices to conserve the $6.5 million on hand and is delaying research on new drugs for Alzheimer’s disease and Parkinson’s, Mathers said.

Biotechnology companies in the U.S. are raising less cash than they have in a decade, according to Burrill, which tracks investment in the life-sciences industry. Financing fell to $8.2 billion through September, from $17.9 billion last year. Venture capital funding fell 16 percent, to $2.9 billion.

Bankruptcies Rare

“For the first time in the history of the biotech industry, you’re going to see unprecedented levels of bankruptcies and dissolutions,” said David Strupp, managing director in the life sciences group at Canaccord Adams, a research and investment bank in New York. “This all will play out in the next six to nine months.”

Bankruptcies in biotechnology have been rare because struggling companies often dodged trouble through mergers, licensing or development deals, or through investors willing to make cash infusions, Strupp said in an interview.

Now, a large number of companies are “not cycling out of this queue,” Strupp said. “Wall Street won’t finance them, and the pharmaceutical industry can’t buy all of them. They keep marching forward without the ability to get saved.”

Most Advanced Drug

Peptimmune’s most advanced drug, PI-2301, is a multiple sclerosis treatment designed to be taken weekly. It would compete with Teva Pharmaceutical Industries Ltd.’s daily treatment Copaxone, which generated $1.7 billion in sales last year. Peptimmune is counting on positive data from a study due in 2009 to show its drug is better than Copaxone.

“If the multiple sclerosis program doesn’t do well, it will be very difficult for this company to raise money,” Mathers said.

MS, which affects about 300,000 people in the U.S., is caused when the body’s immune system attacks the protective coating of nerve fibers. There’s no cure. Four of six MS treatments cleared by the U.S. Food and Drug Administration were developed by biotechnology companies.

Peptimmune, with no products on the market, has raised and spent about $85 million. Biotech companies without products on the market, or those unable to access equity markets by selling shares, are the ones in most need of cash to fund clinical studies, investors and company executives said.

Worst in a Decade

Initial public offerings for biotechnology companies have almost disappeared, with just one, for $5.8 million, so far in 2008. That’s down from 28 IPOs that raised $1.7 billion last year and from 66 in 2000 that garnered $6.5 billion.

The most likely companies to seek bankruptcy are those with less than six months of cash on hand, just a few drugs in development and no definitive clinical data to attract a funding partner, said Andrew Busser, principal at Symphony Capital, a New York-based investment fund. Twenty-five percent of the 370 public U.S. biotechnology companies have less than six months of cash, according to data compiled by the Biotechnology Industry Organization, a trade group in Washington, D.C.

A Darwinian pruning of the weakest companies is inevitable, and isn’t necessarily to be mourned, said Peter Wysong, health- care investment banker for Natixis Bleichroeder in New York, in an interview.

‘Walking Dead’

“Most people would probably say there have been too many biotechnology companies that have been like the walking dead,” Wysong said. “The deaths will be concentrated among companies that have little to offer,” leaving a smaller crop of stronger companies still standing, he said.

On Nov. 10, MicroIslet Inc., a San Diego developer of diabetes treatments, and Accentia Biopharmaceuticals, of Tampa, Florida, sought bankruptcy protection to reorganize, each citing an inability to raise money.

MicroIslet spent $50 million during the past decade developing an experimental treatment for Type 1 diabetes that would involve transplanting insulin-producing cells harvested from the pancreas of pigs into diabetics to allow them to forego insulin injections. The treatment, tested in animals but not in humans, came from technology developed at Duke University in Durham, North Carolina.

With the company $3 million in debt and needing millions more to begin clinical studies, private investors turned away, leaving MicroIslet without money for human tests, said Michael Andrews, the company’s chief executive officer, in an interview.

‘Down the Path’

“We’re at a stage that a lot of companies are in, where it’s time to raise money but there’s no clinical data and you’re not a brand new company coming out of academia,” Andrews said. “I suspect there will be a number of companies that will go down this path.”

In October, AtheroGenics Inc., an Alpharetta, Georgia-based developer of a diabetes drug, filed for bankruptcy after defaulting on $302 million in debt the previous month. Orchestra Therapeutics Inc., of Carlsbad, California, also filed last month. The long-struggling company was co-founded in 1986 by the late Jonas Salk, the polio-vaccine developer who sought to find a way to immunize patients against AIDS.

Amylin Pharmaceuticals Inc., a San Diego biotechnology company, said Nov. 10 it would cut 16 percent of its workforce, or about 340 employees, to try to save $80 million in 2009. Cell Genesys Inc., a South San Francisco, California-based company that recently halted work on a prostate cancer therapy after deaths were reported in a study, said Nov. 6 it will fire 230 workers, or 80 percent of its workers, by year-end.

Lucky Ones

The lucky ones find buyers among bigger pharmaceutical companies to keep research programs alive. That’s what happened to Redwood City, California-based Genelabs Technologies Inc., a developer of hepatitis C treatments, which agreed on Oct. 29 to be bought by GlaxoSmithKline Plc, Europe’s biggest drugmaker, for $57 million. Genelabs’ market value had plunged to $10 million and its stock had lost 82 percent of its value this year before the deal was announced.

“The sign over Wall Street for small biotechs is ‘closed for the season,’” said Frederick Driscoll, Genelabs’ chief executive officer, in a Nov. 6 telephone interview. Driscoll said he considers the company, whose hepatitis C therapies are still in laboratory tests, fortunate.

Other biotechnology companies, unable or unwilling to find a partner, will go into “hibernation, just doing enough to keep the technology alive and waiting for a better day,” Glen Giovannetti, the Boston-based global leader of Ernst & Young’s Biotechnology Center, said in an interview Oct. 31.

Investor Return

Investors will likely return to biotechnology once the economy stabilizes because the industry still promises attractive returns, said Brent Milner, managing director of health care investing at Stanford Financial Group Co., an investment bank in New York.

“Stock-picking will come back in vogue and people will ask, ‘Where are the 30 percent growers?” Milner said. “When that happens, everyone will again look to biotech because everyone loves a lottery ticket. I think there is a long-term silver lining.”

Pharmaceutical company scores med-tech home run

By Jeff Sturgeon 981-3251
Jeanna Duerscherl The Roanoke Times

Vyvanse, an ADHD drug, was developed by New River Pharmaceuticals, which had a lab at the Virginia Tech Corporate Research Center.

Inside a recent issue of Time magazine, a two-page advertisement hailed the work of medical minds in Southwest Virginia.

The ad directed chronic time-wasters among the millions of adults with attention-deficit hyperactivity disorder to try a new drug.

It's Vyvanse, invented by New River Pharmaceuticals, a small, private company that had an office in Radford and laboratory space leased at the Virginia Tech Corporate Research Center in Blacksburg.

Like a missile that soared out of sight, New River Phamaceuticals rode to prominence on a successful initial public stock offering and sold in 2007 for $2.6 billion. It is part of global drug company Shire plc in England with no local operations.

Swallowed in a corporate merger, you won't find New River in the phone book, on the Web or on a table placard at the next chamber banquet.

The company is gone, but what remains of its legacy?

For some entrepreneurs in the New River and Roanoke valleys, it's a big deal that a nationally important drug was developed in this business community. They say the company generated inspiration and cash from which the region continues to profit.

"It has inspired a lot of folks," said Sam English, a Roanoke-based business consultant, biochemist and analyst who works with early stage companies in the life sciences industries.

Others are less impressed.

While taking away nothing from what New River achieved, they say they don't expect a series of medical technology companies to follow, but remain sold on the promise that science and technology-driven businesses hold for the region.

Vyvanse has shown success treating patients with ADHD
By one objective measure, Vyvanse, a Schedule II stimulant, is one of the region's greatest business successes.

The drug is on course to bring in gross revenue of $300 million this year, making Vyvanse a bigger enterprise than many area companies.

For example, Roanoke-based Luna Innovations, which grew out of Blacksburg, is on pace to bring in about $40 million in 2008 revenues. At the top of the spectrum, Roanoke-based Advance Auto Parts sold $4.8 billion in merchandise last year.

Sales of Vyvanse are similar in size to the revenues of Stanley Furniture, a symbol of Western Virginia's old economy that recorded $307 million in sales last year.

Analysts have projected that, with adult ADHD increasingly diagnosed, the drug could be a blockbuster -- a pill whose sales exceed $1 billion a year.

"I have used Vyvanse on several hundred patients from age 5 to some of my now-adult patients in their 20s and 30s with a high degree of success," said Dr. Michael Sisk, a clinician at Roanoke Neurological Associates.

With a few exceptions, Vyvanse triggers the fewest side effects of the central nervous system stimulants prescribed for ADHD, he said. He described the scientists who made Vyvanse as "brilliant."

New River Pharmaceuticals was founded in 1996 and off and running with an initial public stock offering in 2004.

Investors believed that New River would launch important new drugs and stayed with the company through periods of heavy spending on drug development before the first dollar came in.

At times during the first year it was a publicly traded company, it had the fastest growing stock in the United States less than a year old.

As Vyvanse grew in promise, a 2005 partnership with Shire plc generated a payment of $50 million to New River. That was followed by a second such payment after the Food and Drug Administration accepted the drug for review.

By early 2006, following news that more drugs were in the works and favorable national media attention, the company's market capitalization (the value of its stock) climbed to $1 billion.
In April 2007, Shire, the leaking maker of ADHD drugs, paid $2.6 billion for New River.

Drug is No. 5 in its class and could go higher
Vyvanse, which went on sale in July 2007, now makes up about 10 percent of all ADHD drugs sold.

It is the fifth most-prescribed stimulant for the disorder, according to IMS Health, a Pennsylvania health care information and consulting company.

At least 1 million people are taking Vyvanse, most of them children whose parents are looking for relief from the constant rambunctiousness that accompanies the disorder, said Matt Cabrey, spokesman for Shire. He said Shire and New River believed they could position Vyvanse to become the emerging ADHD medicine of choice after top-selling Adderall goes off patent in April.

"And it's proven to be the case," Cabrey asserted.

NRP, shorthand for New River Pharmaceuticals, shows up in tiny letters on the midsection of Vyvanse capsules.

But that's about all the ongoing credit New River receives for its contribution to the project's success.

R.J. Kirk, the Pulaski County businessman who founded New River Pharmaceuticals, said some of the money the company made is still here as business investment capital.

Still here, too, are some of the people who worked at New River.

Throw in the jolt of self-confidence New River inspired in business people, and perhaps a bit of pride, and Kirk sees innovation and commercialization flourishing all the more.

English said business leaders he has encountered elsewhere for a long time did not differentiate Southwest Virginia from the Northern Virginia-District of Columbia region.

They can now thanks in part to New River's impact.

"I wouldn't go so far as to say it put it on the map, but it let some folks know we've got some exciting things happening here," said English, a former Carilion Biomedical Institute analyst who now has his own firm, CIE Partners.

Aric Bopp, who directs the New River Valley Economic Alliance, sees a mixed impact.
"The good of it is that our young startup companies have had the opportunity to see just how much financial reward can be realized and how exciting of an opportunity can exist in the region," Bopp said.

"The bad is that with the purchase of New River Pharmaceuticals by Shire Pharmaceuticals, people also get to see that some of these opportunities don't last forever and how some of the jobs created by these exciting opportunities will inevitably come and go from the region."
Jim Flowers, who runs VT KnowledgeWorks in Blacksburg, warned against expecting too much from the sector New River Pharmaceuticals was in -- which he described as the medical technology end of biotechnology focused on treatment of disease.

"Although New River demonstrated that a med-tech home run can happen here, that does not mean that they will happen here with any regularity," Flowers said. "I don't think the New River success has created any particularly noteworthy local legacy other than some serious wealth in Radford."

Kirk, who controls some of that wealth, is a thoughtful investor looking out for his organization's best interests and "not in the regional economic development business," Flowers said.

For one thing, the region currently has no significant engine of research generating business opportunities in the medical technology subsector, a focus for Kirk's team, he said.

Flowers said entrepreneurs are succeeding to find footholds in a broad range of scientific and technical fields and he is excited by the promise that holds.

"The shift from a manufacturing mind-set to a creative mind-set is palpable and has begun to deliver in a serious way," he said.

Money made from sale of NRP still working locally
Kirk said by e-mail that New River's work force, which he said never exceeded 39 people, did break up when Shire bought the company.

Some went to Shire, which has offices in England and Wayne, Pa. Some work for other companies that Kirk's Radford-based private investment firm is supporting.

"Many local investors and New River employees earned (from their stock purchases and options) millions of dollars each. I am personally acquainted with many local investors who earned very substantial returns and these people are still in the New River and Roanoke Valleys, investing still," Kirk wrote.

Kirk's Third Security, which provided early funding to New River Pharmaceuticals, has grown to nearly 50 people. It has invested $50 million in Intrexon Corp. in Blacksburg, a biotech company that Kirk said is pursuing a more ambitious and potentially more valuable research agenda than New River.

Intrexon, which is developing biotherapeutic control systems to improve the effectiveness of medicines, occupies some of the space that New River used to lease at the Blacksburg research center, Kirk said.

Kirk said some business people seem to find it hard to believe Southwest Virginia will produce more biotech successes on par with Vyvanse.

"I ask, 'Why not?' " Kirk said.

http://www.roanoke.com/business/wb/183410

Job Posting - Adenosine Therapeutics Group, Charlottesville

The Adenosine Therapeutics Group is seeking a highly motivated and independent analytical chemist to join their Lead Development Team. Lead Development serves to progress novel compounds into the clinic through preclinical and clinical activities. Primary responsibilities will include method development for the analysis of small molecules in various matrices, timely reporting of quantitative results, and experimental project management to support our fast paced preclinical and clinical research and development programs. This position will play a pivotal role in the group’s ADME support program as well. This position will require the candidate to possess a strong background in method development for small molecule analysis using HPLC and LCMS technologies. The individual will also be responsible for the timely reporting of results through issuance of formal and informal reports and presentations. The Analytical Chemist will also provide support and assistance to the existing synthetic chemistry group located onsite. For more information click here.

Newsweek: Where Are the Cures?

Scientists call the gulf between a biomedical discovery and new treatment 'the valley of death.'

Sharon Begley
NEWSWEEK
From the magazine issue dated Nov 10, 2008

It has been years since Hans Keirstead worked his biological magic, injecting stem cells into rats with severed spinal cords and thus making them walk almost normally. But the real miracle—since other experiments, too, have cured paralysis in lab animals—is that Geron Corp. plans to test the technique in people next year. Between Keirstead's experiment and Geron's trial lie these obstacles: Keirstead, a professor at the University of California, Irvine, had to invent instruments to squirt the stem cells into spinal cords ("what do we academics know about developing medical devices?" he asked me), find someone to try the technique in monkeys ("I know two researchers who handle monkeys; you have to get in line"), ramp up production of the stem cells ("it meant going from pipettes to this massive hydraulic setup") and … well, more industrial-strength biology that he wasn't trained in, that the government rarely funds and that brings exactly zero glory to a university scientist. "We hacked through the jungle and paved the road," Keirstead said. "But how many others are willing to do that?"

Going by how few discoveries in basic biomedical research get turned into treatments and cures, the answer is very, very few. The nation's biomedical funding and training system are set up to do one thing, and they do it superlatively: make discoveries. That is what scientists dream of, that is what gets them published in leading journals (the coin of the realm in academia) and that is what gets them grants from the National Institutes of Health. Here's what doesn't get them any of those: the grunt work that Keirstead did to turn his spinal-cord breakthrough into something that can be tried in patients.

These barriers to "translational" research (studies that move basic discoveries from bench to bedside) have become so daunting that scientists have a phrase for the chasm between a basic scientific discovery and a new treatment. "It's called the valley of death," says Greg Simon, president of FasterCures, a center set up by the (Michael) Milken Institute in 2003 to achieve what its name says. The valley of death is why many promising discoveries—genes linked to cancer and Parkinson's disease; biochemical pathways that ravage neurons in Lou Gehrig's disease—never move forward.

The next administration and Congress have a chance to change that, radically revamping the nation's biomedical research system by creating what proponents Richard Boxer, a urologist at the University of Miami, and Lou Weisbach, a Chicago entrepreneur, call a "center for cures" at NIH. The center would house multidisciplinary teams of biologists, chemists, technicians and others who would take a discovery such as Keirstead's and nurture it along to the point where a company is willing to put up the hundreds of millions of dollars to test it in patients. The existence of such a center would free scientists to go back to making important discoveries, not figuring out large-scale pipetting, for goodness' sake. "There is a sense among disease philanthropies that something like this is what needs to happen," says Katie Hood, CEO of the Michael J. Fox Foundation for Parkinson's Research. "It's a huge opportunity for a new administration."

Biomedical scientists I spoke to are wary of using NIH money for a new center for cures. They worry that it would divert dwindling funds from the basic research that is their pride and joy and, indeed, the basis for those hoped-for cures. Given current fiscal realities, scientists are right to be worried. But while basic research is necessary for finding new treatments, it is not sufficient. (While the NIH budget was doubling, the number of new-drug approvals fell from 53 in 1996 to 18 in 2006.) When I asked Kierstead if he ever wondered how many promising leads are gathering dust between the covers of research journals because no one is willing or able to push them forward, he said, "I don't wonder. I know it's the case." Why? Because "curing disease is a byproduct of the [NIH] system and not a goal," says FasterCures' Simon. Most scientists don't want to and don't have the skills to translate a discovery into a treatment; researchers at a dedicated center would try to do that full-time.

Some disease foundations have paved the way, turning themselves into mini-centers for cures. The pioneering Myelin Repair Foundation, which funds research on treatments for multiple sclerosis, actively manages the five scientists at five universities whom founder Scott Johnson hand-picked, requiring them to share data almost as fast as they collect it, mandating collaboration and pushing discoveries through the valley of death. For instance, a test-tube finding is quickly tested in a mouse model; contractors are hired to develop ways to scale up a discovery of how to turn stem cells into myelin-making cells that could help MS patients.

There is lots of talk these days about increasing the nation's spending on infrastructure, such as roads and bridges, to lift the economy out of its doldrums. Me, I'd be willing to put up with potholes in exchange for a new administration spending serious money to take the discoveries taxpayers have paid for and turn them into cures.

URL: http://www.newsweek.com/id/166856

High-Tech Equals the High Life

From the Virginia Tech Corporate Research Center eNewsletter, 10/29/08

Roanoke and Blacksburg Region Growing Firms, Creating Jobs

High-tech companies and high quality of life getting noticed

The fastest-growing e-mail specialist in the country. One of the state’s leading biotech companies. A firm with patents for computer-controlled floor advertising. Another developing nanomedicine rototypes.

Silicon Valley? Not even close. Austin? Try again. Research Triangle? Nope.

These companies – and hundreds of high-tech innovators like them – are forming and flourishing in the Roanoke and Blacksburg region.

Lured by a low cost of living, short commutes and proximity to Virginia Tech, recent college graduates, first time entrepreneurs and even seasoned professionals are flocking to the region.

The area is frequently recognized as a great place to raise a family and for its outstanding quality of life. Recently CNNMoney.com and Forbes.com named the region as a top place nationally for entrepreneurs and small businesses.

The Roanoke and New River Valleys are home to hundreds of companies involved in technology, including software engineering, bio-informatics, autonomous navigation, water purification, materials science, aerospace, telecommunications, new media, optics, information technology and more.

With 200 employees, Meridium, Inc. is a multi-national company with its headquarters in Roanoke and an office in the Virginia Tech Corporate Research Center. Its “asset performance management” software helps companies maintain and optimize production, predict and prevent production breakdowns and improve profitability and reliability.

Novozymes Biologicals, Inc., named the Biotech Company of the Year in 2003 by the Virginia Biotechnology Association, has core competencies in developing, manufacturing, and applying live microbial products and is the market leader in several areas of environmental microbiology.

Optical Cable Corp. (NASDAQ:OCCF) in Roanoke designs and manufacturers tight-buffered fiber optic cable systems for use in harsh indoor/outdoor environments, such as mining, oil and gas, military and broadcast industries. OCC is the cable of choice for applications demanding the highest signal integrity and bandwidth for maximum security.

One of the region’s shining stars is Luna Innovations Incorporated (NASDAQ:LUNA) with offices in Roanoke and Blacksburg. Applying proprietary sensing and instrumentation and pharmaceutical technologies, Luna develops and manufactures new-generation products for the healthcare, telecommunications, energy and defense markets. Its products are used to measure, monitor, protect and improve critical processes.

Meanwhile, Mailtrust ranks #217 on the Inc. magazine list of fastest-growing companies in America and has been growing by more than 100 percent for each of the last five years. Mailtrust hosts nearly one million e-mail accounts for businesses throughout the world and was recently acquired by Rackspace, the world’s leader in Internet hosting. Since the merger, Mailtrust has created more than 70 high paying local jobs.

Other companies see the region’s skilled labor market to establish a footprint. One example is the Salem-based office of JDSU, a Fortune 500 company that provides communications test and measurement solutions and optical products for telecommunications service providers, cable operators and network equipment manufacturers.

Behind every great company is someone who believes. Founded by billionaire and Radford native R.J. Kirk, Third Security is an independent, local venture capital firm. Three of its top-10 investments are in the region, including life sciences company Intrexon, which launched a human clinical study related to melanoma; Synchrony, which develops advanced magnetic bearing technology for commercial and military applications; and LevelVision, which patented digital advertising on floor mats and other line-of-sight locations.

Learn more about other technology companies and employment opportunities in the NewVa region by visiting The NewVa Corridor Technology Council, NCTC.