Companies that seek for cures now just try to live

When the terror attacks halted air traffic last year, an exception was made for a private jet flying from Southern California to Washington. It carried sheets of human skin cells to treat people burned at the Pentagon.

Now the manufacturer of that biotechnology product, Advanced Tissue Sciences, is itself in need of emergency aid. The company, based in San Diego, filed for bankruptcy protection last month and is still operating, although it has been unable to raise money.

"What we ran into was the change in the investment climate," said Abe Wischnia, the senior director for investor relations at Advanced Tissue Sciences. "A year or two ago, we would have had no trouble raising additional money."

The biotechnology industry is facing one of its worst financial squeezes ever. The prices of many biotechnology stocks have plummeted, and Wall Street's vaults have snapped nearly shut, making it almost impossible for capital-hungry companies to finance themselves.

As a result, many companies are now fighting for their lives. About 35 percent of publicly traded biotechnology companies have less than a year's worth of cash left at their current spending levels, according to a recent survey by Merrill Lynch. Since the beginning of July, at least 45 biotechnology companies in the US and Europe have announced layoffs or other cutbacks, according to BioCentury, a newsletter.

Among the companies in the most precarious positions are those whose research breakthroughs have attracted much attention in the past. Such technology often tends to be not only far-reaching, but also far out -- in terms of the time when it will start making money. These are exactly the types of businesses that risk-averse investors are now shunning.

The Alliance Pharmaceutical Corp, just down the road from Advanced Tissue Sciences, was the subject of a front-page article two years ago in USA Today for its work developing a blood substitute, a chemical that could deliver oxygen to a patient's tissues when there was no blood available for a transfusion.

Today, Alliance is virtually out of money, unable to resume its clinical trials, down to 90 employees from 180 at its peak and delisted from the Nasdaq National Market. Desperate for cash, it recently borrowed US$3 million -- at an annual interest rate of 100 percent.

Four years ago, the stock of Entremed soared to US$85 a share after The New York Times reported that its experimental drugs had eradicated cancer in mice by cutting off the blood supply to their tumors. Now the stock is trading at US$1.69, and the company, based in Rockville, Maryland, said in September that it had enough cash to last only through the end of the year.

Grabbing headlines

But grabbing headlines does not always translate into business success. Sales have been slow for Advanced Tissue Sciences' artificial skin, which costs up to US$600 a sheet and competes with ordinary bandages. Alliance halted a clinical trial of its blood substitute last year because some patients developed strokes, although the company says the product was not at fault.

Entremed's drugs have not shown the same astounding results in people as they did in mice. Indeed, many of the companies hit hardest have spent tens or hundreds of millions of dollars on drugs and business plans that have failed, but only now are facing the day of reckoning.