EntreMed Inc., the Rockville biotechnology company whose meteoric rise in the stock market has given way to layoffs and red ink, said yesterday that it could run out of money within seven weeks if it does not secure a major financing deal. The company also reported that it lost $11.8 million in the third quarter, despite tripled revenue.
EntreMed said it has $4.8 million in cash, a critically low amount for an unprofitable company, and analysts say that position could force it into a merger or a last-ditch financing deal unfavorable to investors. Complicating EntreMed's financial situation, Wall Street and venture capitalists are beginning to close their vaults to the cash-hungry biotechnology sector.
Co-founder and chairman John W. Holaday said in a conference call yesterday that EntreMed will not initiate new human tests on the company's two leading cancer treatments, Endostatin and Angiostatin, a signal that cost-cutting efforts will now be directed at the company's core products. The company will instead focus spending on another cancer drug, Panzem, that it expects to move more quickly -- and inexpensively -- through human tests.
The company said that its net loss for the quarter ended Sept. 30 was $11.8 million (54 cents per share), compared with $6.2 million (33 cents) in the year-earlier period. Last year's earnings were boosted by a one-time gain of $22.4 million for the sale of future royalties of the cancer drug thalidomide to Royalty Pharma AG. Quarterly revenue surged to $345,569 from $90,988 during the year-earlier period, because of payments for research EntreMed performed on a malaria vaccine for SAIC.
"Our top priority is to secure financing right now," said Holaday, who stepped down as chief executive last week in part to make the company more attractive to potential investors wanting to install their own managers. The company has operated without a chief financial officer for 10 months.
EntreMed has two funding options: sell partial rights to its drugs to a large pharmaceutical company in return for cash, or raise money from investors on terms that will almost certainly dilute the value of existing stock.
"It is disastrous for shareholders when a company tries to get financed at this cash level," said John T. McCamant, editor of the Medical Technology Stock Letter in Berkeley, Calif. McCamant criticized Holaday for not raising money earlier.
EntreMed's board unanimously turned down a recent a partnership deal with a pharmaceutical company because the terms were inadequate, said director Wendell M. Starke. Because investors are now reluctant to funnel cash into biotechnology, wealthy pharmaceutical companies "are in a position to dictate terms to us right now," he said. Starke predicts that the company will spend $12 million next year. The board wants to raise at least two years' worth of operating money, he said.
The cash crunch caps a turbulent 18 months for a company whose stock reached a high of $98.50 in February 2000, when investors believed it was nearing a breakthrough in cancer treatment. But EntreMed's leading drug candidates, which are designed to block blood flow to tumors, have yielded ambivalent results in human tests.
Since then, the company lost two chief financial officers and laid off half its staff. It could be delisted from the Nasdaq Stock Market because the value of its outstanding stock, which is trading at less than $2 per share, has dipped below the minimum price requirement. Shares of EntreMed closed yesterday at 1.22, down 3 cents, or about 2.4 percent.