These days it might seem easier to make a list of non-troubled biotechs. Given the current market turmoil and dire fundraising climate, it is hard to keep track of the relentless flow of news related to corporate restructurings these days. As a result, "The Pink Sheet" DAILY plans to update readers periodically on the most newsworthy struggles of U.S., Canadian and EU small- and mid-cap biotechs.

Most "troubled biotech" scenarios share some common features in the current financial environment - a small company with at least one promising idea is generating little income, has one or more expensive clinical programs to fund, and is trying to stretch or bolster its cash position to get to pivotal clinical data in the hopes of enticing a wealthy co-development and/or commercial partner.

Avigen: Alameda, Calif.-based Avigen, which focuses on neurological compounds, has had a tough year. In its Dec. 15 Biotechnology Balance Sheet report, Rodman & Renshaw noted Avigen posted the second-largest market cap loss among biotechs valued under $500 million during the third quarter, an 87.3 percent drop to $15.2 million, reflected in a $0.51 share price.

The company's share price was hit hard when it announced in October negative news associated with its Phase IIb drug, AV650 (tolperisone HCl), for treatment of spasticity associated with multiple sclerosis. The biotech terminated its development partnership with Austria's Sanochemia Pharmazeutika and said it would focus on developing AV411, a novel glial activation inhibitor, for neuropathic pain and opioid withdrawal (¹ [See Deal]).

But during its third-quarter financial call Oct. 28, Avigen unveiled a massive restructuring plan that entailed discontinuing work on AV411, and another preclinical product, AV513, unless a development partner could be found. CEO Kenneth Chahine said the new direction meant Avigen would have sufficient cash for four years of operations, given the $47.4 million the company had in cash, cash equivalents and securities at quarter's end.

Still, the company's largest shareholder, Biotechnology Value Fund, which holds 29 percent of Avigen's stock and has provided capital directly to the biotech, clearly is troubled by the news.

In a Dec. 11 letter to Avigen's board, BVF's Mark Lampert decried the steep decline in the company's share price, which has fallen 90 percent since 2004. He charged the company with threatening to destroy shareholder value by broadening "golden parachute" provisions for executives to one-fifth of Avigen's market cap and adopting a "poison pill" to prevent BVF from trying to intervene by purchasing a majority share.

Lampert asserted that "Avigen has no real business at this time and has abandoned the development of all its products." Instead of looking for potential new partners and directions, the letter urged Avigen to return its excess cash to shareholders or at least offer a downside guarantee - an obligation to buy shares back at a specified price on a certain date.

Jazz Pharmaceuticals: Also on Rodman & Renshaw's list of the 15 biggest market cap losers during the third quarter is Jazz Pharmaceuticals, which saw its market cap fall 74.3 percent to $36.5 million, with a share price of $1.27. Jazz has about four months' cash on hand, the report estimates.

Although it markets Luvox CR for obsessive compulsive and social anxiety disorders and Antizol for methanol poisoning, the Palo Alto, Calif. biotech has reduced headcount twice this year, most recently cutting 71 employees to reduce cash-burn. In a Dec. 16 note, Lazard Capital's Gene Mack estimated the firm's financing needs likely will keep investors on the sidelines despite recent positive Phase III data on fibromyalgia candidate Xyrem .

In June, Jazz cut its workforce by 8 percent and said it would stall its Phase III plans for the restless legs syndrome compound JZP-7 along with a Phase II program for JZP-4 in epilepsy and bipolar disorder until 2009 (² Also see "Jazz Delays Trials, Reduces Staff" - Pink Sheet, 11 June, 2008.).

Alfacell: Despite the promise of Onconase , its first-in-class RNAi candidate for unresectable malignant mesothelioma, Somerset, N.J.-based Alfacell is extremely cash-poor and recently announced a cost-reduction program.

Rodman & Renshaw estimates the firm has about six months cash on hand, having reported just under $2.0 million at the end of its first quarter Oct. 31. In May, Alfacell reported that Onconase failed to hit a Phase IIIb primary endpoint of overall survival, but that it would file an NDA for second-line therapy after a subset analysis showed statistically significant survival improvement in evaluable patients who had failed a prior chemotherapy regimen (³ Also see "Alfacell Plans Subset Onconase NDA Despite Phase III Shortfall In Mesothelioma" - Pink Sheet, 28 May, 2008.

On Dec. 12, Alfacell announced its president, Lawrence Kenyon, would resign, moving over to Par as executive VP of finance. In addition, the company plans to reduce or eliminate all costs not related to completing a rolling NDA for Onconase in malignant mesothelioma. A pre-NDA meeting with FDA has been scheduled for January.

Panacos: The Watertown, Mass. biotech - focused on bevirimat, a first-in-class, Phase IIb maturation inhibitor for HIV - also faces serious cash concerns. With nearly $27 million on hand at the end of September, Rodman & Renshaw estimated the firm had between eight and nine months of cash.

The biotech's cash position changed dramatically, however, on Nov. 22, when it paid Hercules Technology Growth Capital $17.9 million to resolve a dispute over whether Panacos had defaulted on a June 2007 loan from Hercules. The payment left Panacos with cash and equivalents of about $4.7 million.

On Dec. 10, Panacos cut its workforce from 33 people to 15 and said it was pursuing a range of strategic alternatives, including partnering or sale of the company or one its antiviral assets. In addition to bevirimat, the company also hopes to find financing to advance its second- and third-generation HIV maturation inhibitor programs and its oral fusion program.

-Joseph Haas (j.haas@elsevier.com)

Troubled Biotechs Roundup: Avigen, Jazz, Alfacell, Panacos

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