Time to get out now: PwC

Directors of faltering biotech companies should make the call sooner rather than later on whether to continue trading, in order to protect shareholder funds, PricewaterhouseCoopers life sciences partner Craig Lawn said.

Directors have an obligation and a duty to shareholders to either close down now or look at merging with stronger companies, he said.

“There is still a lot of ego out there, people taking a salary and not meeting their fiduciary obligations, to be blunt,” he said. “They need to do something now, and if they don’t it is inevitable that companies will fail.”

While there are plenty of strong biotech companies in Australia achieving their milestones who will survive the downturn, small companies that are not confident of their ability to use shareholder funds wisely and come out of the recession in a strong position should make the call to close now, not later, he said.

He agreed that the industry needed to realise it probably will not be bailed out by the Government and to look at other opportunities to survive the next year.

“I’m not a policy expert but my reading of the tea-leaves is exactly that,” he said. “We are in a time of crisis and unless it delivers the Government early jobs or early economic stimulus, they are going to put their money elsewhere.

“That may be the wrong medium to longer term option, but right now, in the short-term, you have to look elsewhere.”

Lawn said the medium to long-term prospects for the industry were very good, and there was cash out there even now. However, creative strategies were required, whether it was taking advantage of the R&D tax cash rebate, mothballing certain projects or merging with other companies.

The US biotech industry is in similar straits, with 30 per cent of companies trading with less than six months of cash, the US magazine The Scientist reported.

Almost half have less than one year of cash remaining, mirroring the Australian predicament. Industry association AusBiotech warned recently that one in four Australian biotechs would not make it past this June without immediate assistance.

Only one company in the US listed in the whole of 2008, the magazine reported. Secondary financing also plummeted.