With financing tight, Isolagen says it has 3 weeks of cash

Biotechnology and pharmaceutical companies are voracious consumers of capital because it’s expensive to develop new medical treatments.

So small drug companies raise as much money as they can when they can. When they attain various goals in their development, they look to fund the next stage, and so on, until they reach the point of seeking FDA approval to market a new drug.

That’s where Isolagen Inc. is. On Friday, it submitted to the FDA its application seeking approval of its Isolagen Therapy wrinkle treatment. So now it’s in the FDA’s hands to determine whether the data the company generated through clinical testing supports Isolagen’s contention it should be allowed to sell this treatment.

But even if the FDA approves it, the drug may never reach consumers. Isolagen is running out of money.

To be precise, the Exton company estimates it has enough cash to keep operating for about three weeks. If it can’t raise funding soon, Isolagen said it “may enter into bankruptcy, and possibly cease operations.”

After years of fat times for fund-raising for biotechnology and pharmaceutical companies, money has become harder to shake loose. Besides Isolagen, the Plymouth Meeting-based Genaera Corp. also is facing a financing squeeze. Horsham-based Neose Technologies Inc. recently sold all of its assets and is dissolving and distributing the proceeds to shareholders.

Burrill & Co., a San Francisco-based merchant bank focused on the biotech business, sees the next 18 months as very challenging in terms of raising money. It estimates one-third of all biotech firms nationwide won’t survive. Some may be acquired; others will simply cease to exist.

How did Isolagen wind up confronting its own mortality?

CEO Declan Daly yesterday said company officials were happy last August when it announced positive results from its late-stage study. It had hoped to use those results to raise money from institutional investors to support commercialization of the wrinkle treatment.

But the credit crisis deepened last fall, freezing the availability of capital. Investors, including some who’d backed Isolagen in the past, “had their own issues to work out,” Daly said.

That left Isolagen to try to fund its operations with its own cash. It had $6.98 million in cash as of Sept. 30. Daly said the company is talking with potential sources of funding, but no deal so far.

Shares of Isolagen closed yesterday at 19 cents, up 2 cents. That’s down from a 52-week high of $1.66 in August.

As for Genaera, it has been restructuring its operations since May. Last week, its auditor listed various conditions that “raise substantial doubt” that Genaera can continue as a going concern.

Specifically, KPMG L.L.P. cited Genaera’s recurring losses (more than $250 million over the last 15 years), limited resources to fund R&D, and need for substantial additional financing.

Genaera, which saw its shares close unchanged yesterday at 17 cents, said it can fund its operations and R&D “into the second quarter.”

That’s significantly more time than Isolagen and its 25 employees have. Still, Daly said he remains “hopeful.”