A Dec. 16 Washington Business article erroneously listed Martek Biosciences Corp. as one of the local biotechnology companies with less than a year's worth of cash on hand. The company is profitable. (Published 12/17/02)

The great funding frenzy for biotechnology ended last year, but the end of 2002 is far more frightening to the tiny Rockville biotech EntreMed Inc. Unless it can find new investors during one of the most difficult fund-raising climates in years, it will run out of cash and out of business in 16 days.

The region's biotechnology industry is in one its worst cash crunches ever. For all but a few companies, stock value has plunged, and the easy money that once poured into the sector from venture capitalists, Wall Street investment bankers and large pharmaceutical companies has dried up.

While most local biotechnology firms have enough cash to last them three to 11 years, at least three -- EntreMed, Novavax Inc., and Martek Biosciences Corp. -- have a year's worth of cash or less. A year's supply is the minimum required to protect corporate assets and valuation, analysts say.

Nationwide, about 25 percent of public biotechnology companies have less than a year's worth of money, according to industry newsletter BioCentury.

The problem is reluctant investors. BioCentury calculates that so far this year public companies have raised $857 million through secondary stock offerings, one-third of what they received in 2001.

There is a bright line between companies that aggressively sought out cash during the 1999-2000 biotechnology bubble and those that, either holding out for better deals or confident they had enough, took a pass. The former are comfortably riding out the bear market, while many of the latter are in trouble.

EntreMed stock soared to $85 a share last February after reports that the experimental drugs it was developing might cure cancer. Patients and investors besieged the company, but its core products, which try to starve tumors by choking their blood supply, yielded ambivalent results in human tests.

Shares of EntreMed now trade at $1.18. Even after laying off half its employees and postponing new human tests for its leading drug candidates, the company reported in September that its $4.8 million will run out by Jan. 1. "Our top priority is to secure financing right now," John W. Holaday, the company's chief scientific officer and until recently its chief executive, told analysts last month during a conference call.

Columbia's Novavax, which is developing an estrogen-replacement cream that many believe might be worth $200 million a year, has about $7.6 million in the bank, enough to keep running for the next five months.

"The last year has been one of the most difficult investment climates that I can recall in my lifetime," said Novavax's new chief executive, Mitchell J. Kelly, who hopes the company will soon raise about $15 million to launch Estrasorb, now under federal review.

"The best time to get cash is when you don't need it," said Peter L. Buzy, chief financial officer at Martek Biosciences in Columbia, which last week had $22.4 million on hand. The company last week reported a $375,000 profit on $15.1 million revenue for the quarter ended Oct. 31. "The risk is very high if you let your cash go down below one year."

The drug development at those companies may be promising, analysts say, but managers who spent freely throughout the financing flurry are finding that investors have lost enthusiasm for the long wait for regulatory approval and are unwilling to provide the enormous capital required to deliver products to the market.

"Management got used to a nice market for biotech and convinced themselves the good times were here to stay," said Kenneth Trbovich, an analyst at C.E. Unterberg, Towbin in Denver. "They did not appropriately plan for the worst-case scenario."

Cash-strapped biotechnology companies can quickly raise money, through public or private stock offerings or partnerships with big pharmaceutical firms. But such last-ditch plans typically dilute their shareholders' stakes, can deprive companies of future royalties or mortgage away promising products, analysts say. The longer executives wait, the weaker their bargaining position.

Cash is also low at GenVec Inc., the Gaithersburg company developing BioBypass, which treats heart and artery diseases by growing new blood vessels. With about $23.5 million in cash and short- and long-term investments, according to its filings with the Securities and Exchange Commission, GenVec has about a year's worth of money and plans a private stock offering to build its coffers, chief executive Paul H. Fischer said.

Investment droughts are not uncommon in biotechnology, but what makes this one notable, observers say, is how starkly it has separated the rich from the poor. At the peak of the bubble, many Washington area companies did raise money with an eye on the next downturn -- and emerged with astonishing payloads.

In February 2000, for example, Celera Genomics Corp. raised $944 million through a secondary stock offering. The attraction for investors: a database containing the 3 billion letters of the human genetic code. "The timing could not have been much better," said Robert M. Bennett, Celera's director of investor relations. Today the Rockville company is undertaking a daunting two-year transition from data vendor to drug developer. Chief executive Kathy Ordonez cut $30 million from the fiscal 2002 budget, but it will be years before the company needs to raise money.

Not far from Celera, Rockville-based Human Genome Sciences Inc. also sits atop an enormous cash reserve: $1.6 billion, much of it raised in 1999 and 2000. The company has lost hundreds of millions of dollars, has little revenue and will not have a marketable product for several years. But with money to spare, it has eight drugs in human tests and is building a corporate headquarters on 55 acres in Montgomery County.

Two years ago, genetic data vendor Gene Logic Inc. raised $250 million through a secondary stock offering. Also in Gaithersburg, MedImmune Inc., Maryland's most profitable biotech company, has more than $1.2 billion on hand and a major drug, Synagis, on the market.

What Wall Street Wants

It's unclear what will happen to the region's poorest biotechs. Some, calling on strong drug development, expect to get back on their feet; others with weaker product lines may not recover.

With six products on the market, Novavax is in better shape than other cash-pinched companies. Even in the hostile fundraising environment, Novavax can point to existing commercial drugs and a major product on the way when courting potential investors. Novavax withdrew but recently resubmitted its Food and Drug Administration application for Estrasorb, its estrogen-replacement cream.

"We are not injecting new molecules into rats in advance of having a product in 10 years," said Kelly, Novavax's chief executive.

But commercial products, once viewed as magnets for investors, no longer guarantee a biotech company's financial health. What Wall Street wants, industry experts say, is not just a handful of marketable drugs, but a procession of experimental products they are confident can eventually pass FDA muster.

That reality has created a problem for companies like EntreMed, where the absence of a late-stage drug will probably complicate efforts to raise money, executives in the industry say. Its leading cancer treatments, Angiostatin and Endostatin, which made impressive headway when given to mice, have not produced the same results in humans. As a result, the company turned to another cancer treatment, Panzem, which could take years to get regulatory approval.

EntreMed's Holaday recently stepped down, opening the door for a takeover. But many wonder how EntreMed can attract money. In an industry clamoring to know what's next, analysts say, EntreMed has not offered potential investors a clear answer.

"Unless they can see, touch, feel how a company is going to be successful, investors are unwilling to bet on the future," said Charles M. Fleischman, president and chief financial officer at Digene Corp.