A dry summer ahead for funding?

The financial crisis and depressed market are a life-threatening drought for many biotech companies, according to an April e-newsletter from the Biotechnology Industry Organization. Says BIO:

There may be no summer lovin’ for biotechs. By most accounts, investors will remain tight-fisted with their cash for some time, opening up their wallets for only the most promising investments.

Writer Eric Wahlgren cites Burrill & Company estimates that more than a third of 344 public biotechs were down to less than six months cash on hand at the end of the first quarter.

Despite the gloom, there’s still investment money out there, but companies will have to work harder to get it, experts say. The key to being successful at raising money in the current environment will be to think creatively, remain flexible, and start talking to potential investors well before there is an urgent need for cash.

In the BIO piece, industry players suggest biotechs may have to tap existing venture capital investors for inside-led rounds, consider venture debt, outlicense more compounds for the cash, set up special financing structures and the like.

One example of creative dealmaking is Exelixis, BIO says:

The advice for companies looking for cash, [Exelixis CFO Frank] Karbe says, is that they should always be having lots of discussions with all types of investors, including bankers, venture capitalists, specialty funds, and other biotech and pharma companies.

Thinking creatively and working harder, by the way, may mean experiencing more than the usual pain in fundraising and valuation – for example, selling the company when you’d rather just raise cash.

The advice to biotechs – work hard, stay flexible, be creative – probably applies to investor relations teams in many industries. Money doesn’t seem likely to rain down on anyone in 2009.

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