What's the difference between Crop Genetics International of Hanover and Nova Pharmaceutical Corp. of Baltimore? About four months.
And about $50 million.
Crop Genetics raised about $27 million in a public offering of preferred stock in July; in November, the stock market having been rocked by Iraq's invasion of Kuwait in August, Nova had to cancel its own planned $25 million offering of preferred stock because investors weren't biting.
Biotechnology companies are being squeezed again, as investor skittishness over the prospects for war in the Middle East and recession at home help turn the screws on the young, capital-intensive industry.
Capital for biotech companies has been hard to come by ever since the 1987 stock market crash, but venture capitalists and biotech executives say the latest crises have slammed the door on opportunities that had emerged this year.
"Through the 1980s, the biotech industry lived with more or less cheap and more or less available capital," said G. Steven Burrill, national director of manufacturing and high-technology industry services for Ernst & Young, one of the nation's top accounting firms.
"That's not true today. In the 1990s, capital is going to be significantly more expensive and significantly less available. As we move into a recession and a tighter capital market, this sort of thing, something more speculative, gets harder to sell."
Biotech companies aren't the only ones that are having trouble getting or expanding lines of credit, launching stock offerings or getting fresh venture capital. The problems affect all kinds of small businesses. But biotech -- an industry in which developing a new drug can take up to a decade and the companies involved
don't have the deep pockets of large, established drug companies -- is unusually dependent on easy access to capital.
The result in Maryland of this year's capital squeeze on biotech companies has been lost growth opportunities and some layoffs in an industry that state officials say is vital to Maryland's economic future.
"The layoff was a direct result of financing," said Reed Prior, president of Genex Corp. of Gaithersburg, which cut its staff to 28 from 65 on Nov. 12 after the outbreak of Middle East hostilities upset preparations for a public stock offering.
"The banks have been giving us a tough time, that's for sure," said Skip Colvin, chairman of Cerex Corp., a maker of equipment used in biotech research that also is based in Gaithersburg. Cerex took $2.3 million in orders in the first quarter of 1990 alone but is trying to ship $1.5 million worth for the whole year, he said.
This year's capital squeeze is only the latest chapter in the evolution of the biotechnology industry, which was born in the 1970s as a glamour field offering big-bucks bonanzas bursting out of test tubes. Some of the promise of early biotech companies was kept, as when companies such as Genentech Inc. went public and their stocks became Wall Street darlings that enriched the people who bought them.
But other biotech companies ran into much harder times, and investors picked up a bad case of once burned, twice shy, said Deborah Smeltzer, a partner in Grotech Partners, of Timonium.
"You have investors asking, 'What has biotech delivered?' " Ms. Smeltzer said. "I think at least in the public stock market, there are people saying that a few biotechnology companies have delivered but many haven't." The prospects of a recession and war aren't the only things that have bogged down biotech investment this year, Mr. Burrill said.
"There was a window of three or four months" when it was easier to get financing, he said, pointing to Crop Genetics as one company that was able to take advantage of it. "It closed up as a result of the Cetus fiasco at the FDA."
Cetus Corp.'s chief executive officer quit in August after the Emeryville, Calif.-based company failed to win expected U.S. Food and Drug Administration approval of a drug designed to fight kidney cancer.
Cetus' problems with the FDA reinforced the fact that it takes years to develop a drug and satisfy the demanding FDA standards for approval of its distribution, Mr. Burrill said.
That highlighted the growing distinction in the biotech industry between companies that have products ready to roll out and make profits and those whose products are still being researched and developed.
"The gap, if you will, between the haves and the have-nots is continuing to increase," Mr. Burrill said. "The haves are about 30 companies, and the have-nots are about 1,000 [nationwide]. Investors are not interested in financing pure science."