from bloomberg.com

Cash-Strapped Biotechs May Follow Ventracor Failure


March 25 (Bloomberg) -- The failure last week of Ventracor Ltd., once the "darling" of Australia’s life-sciences industry, may herald more collapses as a global capital drought forces cash-starved companies to find partners or wind down.

Almost half the nation’s 130 publicly traded life-sciences companies risk insolvency in the next year, according to AusBiotech Ltd., a Melbourne-based industry group. Capital raised by listed biotechs plummeted to A$183 million ($129 million) in 2008 from A$943 million in 2007, the group has said.

Ventracor, a maker of heart pumps, is the third and biggest Australian life-sciences company to fail in the past six months as the credit crisis deprives research-based biotechnology companies of the cash they need to develop life-saving medicines and devices. Avexa Ltd., working on a drug to treat HIV, said it needs new capital to complete tests and is looking for partners.

"Ventracor is the sign of things to come," said Brigitte Smith, who helps oversee more than A$400 million of life- sciences investments as managing director of GBS Venture Partners Ltd. in Melbourne. The next 6 to 12 months "could kill the whole sector," Smith said in a March 20 telephone interview.

The maker of heart pumps went into voluntary administration after failing to attract enough money to continue U.S. trials of its VentrAsisst LVAD pumps for patients with heart failure, the Sydney-based company said March 19. It had approached more than 130 potential investors in Australia, the U.S. and Europe over more than a year, and was also unable to convince its existing owners to buy new stock, the company said in the statement.

‘Once a Darling’

The shares were halted from trading on Feb. 6 at 8.3 cents, giving Ventracor a market value of A$24.9 million. They were first sold to the public in 1993, and in August 2003 closed at a record high of A$3.08, valuing the company at A$516 million.

"It was once a darling stock, and I doubt anything else will come of it," said David Blake, co-editor of Bioshares, a weekly report on Australia’s life-sciences industry.

Investors haven’t shied away from the industry completely, even though most companies have yet to turn a profit. Last week GBS Ventures stopped accepting money for a new A$122.5 million fund. It has helped finance three projects and was the main participant in a $24 million fundraising for Peplin Inc., an Emeryville, California-based developer of a gel to prevent certain types of skin lesions becoming cancerous. The stock has gained 57 percent in Australian trading this year.

Ventracor’s demise comes after Portland Orthopaedics Ltd., a developer of prostheses for use in hip and knee replacements, went into administration in December. In October the same fate befell Apollo Life Sciences Ltd., a developer of drugs for diabetes, arthritis and psoriasis. Both are based in Sydney.

Next at Risk

Avexa, developing a treatment against a form of drug- resistant HIV, may be among the next at risk, Blake said. The Melbourne-based company said last week it expects cash to dwindle to A$9 million in June from A$20.5 million at Dec. 31.

"We would need a capital injection for our projects to go forward, whether it be through partnership or capital raising, or a combination," Julian Chick, the company’s chief executive officer, said in a March 23 telephone interview.

Avexa said today in a statement it aims to raise A$14.8 million by selling new shares at 7 Australian cents apiece, 36 percent less than yesterday’s closing price. The stock fell 19 percent to 8.9 cents, valuing Avexa at A$37.8 million.

Funding, Partners

Even though the stock surged 81 percent in two days last week after tests showed its medicine, called apricitabine or ATC, helped patients, it’s still down 90 percent from a record high in March 2007. Avexa is talking to "more than one" potential partner, Chick said.

"If we weren’t to get any more capital, and not partner ATC at some stage, then we would have to consider what we do as far as conserving capital goes," he said. That may include "slowing down programs, or perhaps taking suboptimal licensing arrangements."

Companies with "strategically relevant" products are most likely to survive, said Gordon Black, who invests in life- sciences stocks for East West Capital Ltd. in Sydney.

"The market conditions are forcing a rationalization," said Black, a managing director. "Companies that have something to offer will get through, some will get acquired, and others will wind up. Watch this space."

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