Young, upstart pharmaceutical and biotech companies do one thing that almost no other industry does. They go years without generating any revenue. Thanks to investors, they can periodically issue shares to raise cash while their drugs are in development. Companies in this space like to raise capital when it reaches an inflection point like a successful clinical trial or FDA approval. We saw a textbook example of this back in January. Keryx Pharmaceuticals'  successful phase 3 trial of Zerenex resulted in an share price jump of 136%, which the company immediately followed up with a $55 million secondary offering to replenish its coffers. 

Between those inflection points, though, investors need to keep a keen eye on how these companies are spending their cash. Today, let's check in with MannKind , Dynavax Technologies , and Ariad Phameceuticals to see how they are managing their cash.

Tighten up
While MannKind has several products in its pipeline, it has suspended much of the work on these projects in order to make a big push with its inhalable insulin drug, Afrezza. Hopefully this move can accomplish two things: (1) It can help reduce overall expenditures so the company can prolong the lifetime of its cash on hand, and (2) it can focus the company on Afrezza's clinical trials.  Results for Afrezza's phase III clinical trials should be ready sometime in August. For the past several conference calls, the company has been saying that it is discussing the possibility of a partner, but according to fellow Fool Max Macaluso, don't expect any news on that front until after the clinical trials.


Perhaps MannKind executives should take cues from some of its peers in the space and do a share issuance large enough to keep the company afloat for more than a couple of months.  Last year, the company did issuances in January and October for about $86 million. At the end of the fiscal year 2012, the company has about $61.8 million left in cash on hand.  With the company spending on average just under $30 million per quarter, it's only a matter of time before another share issuance.

Going back to the drawing board
Luckily, Dynavax has a decent amount of liquid assets on its books, because it will probably need every dollar of them.  Last week, the FDA sent a double blow when it rejected its Hepislav vaccination on the grounds that further study was needed to test the safety of the drug and that it was raising some questions regarding links to rare autoimmune diseases . In order to provide evidence to the FDA, it will need to reevaluate the data in its clinical trials in hopes that it can gain approval with a more restricted target audience .  Making the market even tighter for the drug will not help its case much, though -- especially considering that there are already a couple drugs on the market for hepatitis B. 

According to Dynavax's recent earnings release, the company went through about $23 million of its cash pile in the past quarter, and it has about $125 million in cash and marketable securities left on its balance sheet.   With only about $1.8 million coming in from research contracts and grants, the company will need to rely heavily on its cash to keep up its work on both Hepislav and its other two vaccinations in the product pipeline.  Hopefully, there will be some good news along the way, because as its stands the company's share price has dropped over 60% since its last issuance of shares.

You may have a drug on the market, but you're not out of the woods
So, Ariad Pharmaceuticals is in a bit of a different place than the others on this list because it has brought its drug Iclusig to market, but that doesn't mean that the drug has made an impact on the income statement yet.  The drug's release in January means that it still needs to keep an eye on its finances, especially considering the competitive market it is trying to capture.  Iclusig is hoping to gain a foothold in the crowded chronic myeloid leukemia market -- which already has Novartis' Gleevec and Tasigna, Bristol-Myers Squibb's Sprycel, and also has newcomers Pfizer's Bosulif and Teva's Synribo as well.  Despite the FDA approval and the launch of the drug, Ariad is still in the process of another phase 3 clinical trial where it will compare the efficacy of Iclusig versus Gleevec.  If the trial proves successful  the company could move up the treatment pecking order.  It also is still awaiting approval from the European regulatory commission, which they expect sometime later this year. 

The company raised just over $300 million on a secondary share offering back in January. Added to its holdings at the end of the fiscal year, the company has about $475 million in cash and marketable securities. The company announced in its most recent 10-K that the combination of its newfound revenues from Iclusig and its cash on hand will be sufficient to keep the company going until the fourth quarter of 2014.  Averaging this out, it would mean the company would spend about $60 million of its cash per quarter, which is a big jump from the $43 million it spent last quarter. This is somewhat understandable, though, considering the company will now need to account for sales and marketing expenses as well. 

What a Fool believes
Don't expect MannKind or Dynavax to bring their drugs to market without some sort of financial move. In the case of MannKind, that could be a partnership. For Dynavax, hopefully it will garner enough good publicity to see a spike in share price so it can replenish its cash pile. While it is important for these companies to keep their budgets in order, it is far more important that these drugs pass clinical trials. The success of these drugs is the only mechanism for the companies to start generating profits.

For Ariad, let's hope for shareholders' sake that this is the last equity issuance. The market it hopes to penetrate is pretty competitive, but there is a lot of money in the CML market.  Last year, the three drugs on the market totaled about $4.75 billion in sales. 

Will MannKind's disruptive technology revolutionize the way diabetes is treated around the world -- or will the FDA put the kibosh on this product before it even hits the market? In a new premium research report on MannKind, these complex issues are made crystal clear, in addition to showing you why to buy or sell the stock today. To find out more -- and get a full year of free updates -- click here to grab your copy today.

The article 3 Biotechs Still Burning Through Cash originally appeared on Fool.com.

Fool contributor Tyler Crowe has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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