Still, the feeling of wealth led some companies to spend profligately. Like Internet start-ups, some biotechnology companies decided to spend heavily to build their business while ignoring the need for profits.
Money burn
So now, even companies in no immediate danger of running out of money are slowing their "burn rate" -- the speed at which they go through cash -- in case the market downturn lasts for years.
DeCode Genetics, a company searching disease-causing genes in the relatively homogeneous population of Iceland, its home, cut 200 employees in September -- on the same day that it announced a collaboration with Merck & Co. worth up to US$90 million.
In Alameda, California, Avigen, which is developing gene therapy to treat hemophilia, cut 28 percent of its work force last month so that its cash will last for four or five years instead of three, said John Monahan, the chief executive. Even Human Genome Sciences, with US$1.5 billion in cash, and Abgenix, with US$464 million, are facing investor pressure to preserve cash.
With the public markets virtually closed, public companies can still raise money by selling stock privately to investors, though often on onerous terms. And venture capitalists make their returns when those start-ups go public. With the market for public offerings effectively closed, venture capitalists are starting to cut back as well on the amounts of money they offer to companies.
"We're starting to see values fall pretty aggressively," said Brian G. Atwood, a managing director at Versant Ventures in Menlo Park, Calif. He added, "Almost every private company I know is considering doing a layoff."
In some cases, venture capitalists must now put additional money into companies in their portfolios that would normally have gone public by now, leaving less for new companies. And with the valuations of publicly traded companies so low, some venture firms are tempted to invest in public companies rather than private ones.
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