Sector Snap: Specialty Pharma Funding

Specialty drug developers seeking additional funding for development and marketing programs could face tougher financing hurdles because of a lingering credit crunch, according to Susquehanna Financial Group.

Analyst Angela Larson said several companies running out of cash or nearing a dangerous level could find that investors are less generous and less patients because of the market downturn. The market slump has made investors more cautious, she said, and they often want better foresight into a drug development program's potential payoff.

"Unexpectedly, we believe the difficult financial market environments and the need to preserve capital are leading investors to demand greater illumination before investing," she wrote in a note to investors. "The need to see a light at the end of the tunnel leads to a limited number of choice investments, only those with Phase 3 data or those with FDA approved products."

Companies in the deepest trouble release "going concern" notices, typically because they lack of 12 months' worth of cash. But many companies that have not filed such notices may have to soon enough because of the tougher funding climate.

Switzerland-based Alcon Inc., Chadds Ford, Pa.-based Endo Pharmaceuticals Holdings Inc., and New York-based Forest Laboratories Inc. are among several companies currently in good financial shape, she said. But the field is full of companies already facing funding issues with current "going concern" notices, including Watertown, Mass.-based Acusphere Inc.; Gaithersburg, Md.-based Iomai Corp.; and Woodridge, Ill.-based Advanced Life Sciences Holdings Inc.

Just as pressed though, are the companies that will likely need to raise cash in the next year or so, including South San Francisco, Calif.-based Anesiva Inc.; Princeton, N.J.-based Barrier Therapeutics Inc.; and San Diego-based Cadence Pharmaceuticals Inc.

Anesiva faces increasing costs for its development of the pain treatment Adlea, and the tough financial climate makes it a risky stock, she said. Shares of Anesiva fell 1 cent to $3.89 in afternoon trading.

Barrier, meanwhile, is dependent on a few products for its revenue, and it will likely need to raise cash for its ongoing development programs. The stock rose 6 cents to $3.50. Cadence, meanwhile is preparing the launch of its pain drug Acetavance and infection treatment Omigard, which could be costly. The stock rose 27 cents, or 4.2 percent, to $6.67.