I’ve heard about serial entrepreneurs who start a company, build it up to a certain point, sell it to someone bigger, and then repeat the whole cycle again. But I had never heard of a true biotech sequel until I met Randall Woods a couple weeks ago.

Woods is the CEO of San Diego-based Sequel Pharmaceuticals, and a well-known entrepreneur who’s also the chairman of Biocom, the local biotech trade association. The two-year-old startup is literally the sequel to his previous company, Novacardia, a company that Woods led until it was sold for $350 million to Merck on Sept. 6, 2007.

Sequel came less than 24 hours later. The same nine employees, in the same office, with the same management team, and the same board (except for one), set their sights on a new goal. The idea was to take a drug in the early stage of development, steer it to the later stage of trials until the concept is more proven, and then sell it for a bundle to big drugmaker. Novacardia took a drug into pivotal studies for congestive heart failure, then passed the baton to Merck for the final phase of development. Sequel aspires to do the same thing with a different drug for a different heart ailment—atrial fibrillation.

“We didn’t even have a 24-hour break,” Woods says. “We just changed the sign on the door.”

This group of people clearly has skill in cardiovascular disease, so it knows something about the new problem. Atrial fibrillation is an abnormal heart rhythm that can cause acute attacks, or a chronic condition whose symptoms include shortness of breath, chest pain, or stroke.

Randall Woods

About 2.2 million people in the U.S. are estimated to be affected, and it caused 470,000 people to be hospitalized in 2003, according to the American Heart Association. The incidence is thought to be increasing as the Baby Boomers get older. There haven’t been many new developments in treatment either, except Sanofi-Aventis’ dronederone (Multaq), which first won FDA approval in July. That drug showed it could reduce hospitalizations from cardiovascular disease and deaths from all causes by 24 percent when compared to a placebo. Other than that, patients sometimes take beta-blockers to slow down their heart, or warfarin to thin their blood, Woods says. Another treatment from Vancouver, BC-based Cardiome Pharma is seeking FDA approval.

Sequel’s drug, called K201, is designed …Next Page »

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Perhaps it’s a sign of the “coolness” of medical device technology in San Diego. Fresh on the heels of Philips Electronics’ purchase of San Diego-based InnerCool Therapies, which uses cooling therapies to treat patients, BeneChill says it has raised $13.5 million in a Series C round of venture funding. In its statement, BeneChill says a new investor, HealthCap of Stockholm, Sweden, led the financing and existing investors MedVenture Associates and NGN Capital also participated, along with the Solon Foundation.

BeneChill says proceeds will be used to fund early commercialization of the company’s RhinoChill, a portable medical device that uses a catheter to deliver a proprietary coolant to nasal passages. Induced hypothermia is currently used in hospitals to treat patients with cardiac arrest, stroke, or head injury. Because the RhinoChill device is portable and requires no external power source, the San Diego company says it is targeting emergency field settings for the product. European health regulators approved RhinoChill in 2007 for use in European Union countries.

BeneChill says it recently completed a randomized study of RhinoChill in cardiac arrest patients, which is intended to show whether the addition of intra-nasal cooling during field resuscitation improves the outcome for people suffering a heart attack in comparison to hospital-based cooling. BeneChill says results of the study will be announced at the American Heart Association’s Scientific Sessions in Orlando, FL, in November. If the results are positive, the company presumably will seek FDA approval.

Founded in 2004, BeneChill is developing its non-invasive patient cooling applications for field and ambulance care, emergency rooms, and general hospital operations.

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Walk into a hospital with the telltale symptoms of a stroke, and chances are you’ll get something called a transcranial Doppler ultrasound test. This tool uses ultrasound waves to look inside the brain, noninvasively, to see how fast blood is flowing.

What’s important about that? It’s a useful technique to see whether a clot or piece of scar tissue is gumming things up, potentially causing trouble. The same goes for examining people with head injuries from car accidents, or to check if you are recovering well, or not, from brain surgery.

Any standard ultrasound machine can do this procedure, but it takes a skilled ultrasound technician between 5 and 15 minutes to get a single snapshot of data. What if you could make an automated machine that continuously monitors trends of blood flow in the brain for hours at a time? Wouldn’t that cut down on labor costs, and probably give you a more accurate set of data points to analyze how a patient is doing? Would it be easy enough to take readouts before and after surgery, or before and after drugs are given, to see how well treatment really worked?

That’s the concept driving Bellevue, WA-based PhysioSonics. This company is developing the first tool that’s supposed to give that automated, continuous recording of brain blood flow in the hospital. The company made news a year ago when it received a $4 million investment led by Johnson & Johnson Development Corp., and this month it secured some more financing along with a second strategic partnership with a large, unnamed healthcare company, says CEO Brad Harlow. PhysioSonics isn’t saying much yet about how much proof it has amassed behind this concept, but the company is now making the machines, and is preparing to apply for FDA approval to sell them.

“This will make it so you don’t have …Next Page »

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PhysioSonics, the Bellevue, WA-based developer of ultrasound technology for monitoring blood flow in the brain for patients with stroke or traumatic brain injury, has raised $2 million in equity out of a $4 million offering, according to a regulatory filing. The company, a University of Washington spinout, is led by CEO Brad Harlow. It raised $4 million last June from Johnson & Johnson Development Corporation. It lists Harlow, Robert Frederickson, Lauren Pflugrath, and Scott Moonly as directors.

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Boston-based medtech startup Myomo has cut its staff by 66 percent and adopted a more virtual business model over the past year, due to slower-than-expected initial sales of its highly acclaimed robotic elbow brace for stroke victims, company co-founder and interim CEO Steve Kelly tells Xconomy.

Kelly says that the angel-funded startup “hit a wall” financially toward the middle of last year, prompting the company to trim its ranks from a dozen to four full-time employees last spring and summer. Also, past company CEO Thomas Glover—a former executive at medical products giant Johnson & Johnson (NYSE:JNJ)—resigned from his post at Myomo last summer, at which time Kelly took over as interim chief executive. Nearly two years since the FDA cleared Myomo’s robotic elbow brace for use in hospitals, only three medical centers have purchased the devices, Kelly says. He adds that the devices are in use at clinics in the Boston and New York markets, and the firm plans to add Hartford to that list in the near future.

“I’m a little disappointed—I thought we would be in more metropolitan areas right now and we’re not,” Kelly says. “That’s partly a function of the economy and the fact that [healthcare] is a conservative industry where things don’t get adopted quickly.”

Myomo’s technology, initially developed at MIT, is indeed new to healthcare practitioners. The firm’s first and highly acclaimed product, called the “e100 NeuroRobotic System,” is an elbow brace equipped with electrodes that pick up electrical signals on the skin when a patient is trying to move a partially paralyzed limb. The system translates the signals into movements. And even though the technology has brought the startup awards from MIT and Popular Science magazine, rehab clinics that the company has initially targeted for sales have been slow to adopt the device. The $7,500 cost of the system has not yet garnered U.S. insurance reimbursement, and clinics that purchase the FDA-approved device don’t necessarily get reimbursed more for providing therapy with the product than they would without using it.

Still, Kelly says he is pleased that his company chose to reduce its expenses and adapt to a virtual model with outsourced manufacturing and engineering before the economic meltdown in late 2008, when many companies were forced to abruptly lower costs and adjust to operating with fewer employees. (He says that Myomo has raised less than $5 million from himself and other angel backers, but he declined to provide further financial details.)

Myomo has ambitious plans to …Next Page »

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It was a very quiet week for deals in the Northwest, with just a trickle of activity in software, security, and biotech.

—Seattle-based Haute Secure, a software firm focused on computer security against malware, raised about $1.6 million in Series A funding. Investors in the round included Silicon Valley firms Baseline Ventures and Sherpalo Ventures.

—LookStat, a Seattle-area startup that makes software for analytics and workflow automation for the microstock photography industry, has received an investment from Founder’s Co-op, a Seattle-based seed-stage fund. (The news was mentioned in passing by investor Andy Sack at a financing talk.) The amount of the investment and the closing date weren’t announced, but Founder’s Co-op tends to invest between $250,000 and $500,000 in early-stage tech companies.

—Luke reported that Seattle-based VPDiagnostics received a $2.9 million grant from the National Institutes of Health to run a clinical trial of its MRI technology for determining a patient’s risk of stroke. The technology is based on 15-plus years of research at the University of Washington.

—Seattle-based Second Avenue Partners renewed its investment in Fanzter, a Collinsville, CT-based new media company. The $2 million Series B financing round was led by Steamboat Ventures. Fantzer, which was also backed by Seattle investors Curious Office Partners and Rich Barton (from Zillow), runs a celebrity website called Coolspotters.com.

—Seattle startup TrafficGauge, a provider of road traffic information in real time, was acquired by Networks In Motion, a mobile navigation and search company based in Aliso Viejo, CA. Financial terms were not disclosed. TrafficGauge first rolled out a mobile traffic map in Seattle in 2003.

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It was another busy week in Seattle life sciences, with some good news from the nonprofit side, and some bad news from the public-traded biotechs.

—Xconomy had the exclusive story this week on how Merck’s Stephen Friend is forming a new nonprofit in Seattle called Sage that hopes to spark an open-source biology movement to make better drugs. Friend, with co-founder Eric Schadt of Merck, has raised the initial $5 million in seed donations, and formed initial collaborations with the Fred Hutchinson Cancer Research Center, the University of Washington, and Yale University.

–Seattle-based Arzeda, the maker of designer enzymes emerging from the lab of University of Washington biochemist David Baker, told Xconomy in another exclusive about how it has secured commitments from OVP Venture Partners and WRF Capital to anchor its $12 million Series A venture round. It plans initially to make enzymes to protect crops from herbicides, and then pursue higher-difficulty projects like biodegradable plastics and cellulosic biofuels.

—Cell Therapeutics (NASDAQ: CTIC), aiming preserve its remaining cash, said it is closing its animal testing facility in Italy and laying off 62 workers there. It still has about 122 employees in Seattle, a spokesman says.

—Seattle Biomedical Research Institute secured a $2.3 million grant from PATH’s Malaria Vaccine Initiative to narrow down a list of promising candidates for malaria vaccines. I got the inside scoop from the Malaria Vaccine Initiative’s Ashley Birkett on why PATH is so high on the work happening down on Westlake Avenue.

—Targeted Genetics (NASDAQ: TGEN) said this week it is conserving cash for a few more months, by transferring its manufacturing know-how of AAV viruses for delivering gene therapy drugs to contract manufacturers. It says it now has enough money to operate through the first half of 2009.

—Life sciences isn’t completely about new drugs and medical devices. This week, we put together a list of more than 80 cleantech players in Washington, which includes a few people using sophisticated biology to pump out industrial quantities of renewable fuels. The list actually reflects a lot of diverse technology ideas, from life sciences through IT.

—VPDiagnostics, a Seattle-based company that spun out of research at the University of Washington, said it secured a $2.9 million grant from the National Institutes of Health. The grant will be used to run a 300-patient clinical trial that will look at how well the company’s MRI-based technology does at predicting when patients are at high risk of having a stroke.

—I listened to an update from the Biotechnology Industry Organization’s lobbying team in the other Washington (DC), led by president Jim Greenwood. The news is pretty grim, as about one-third of all publicly traded companies have less than six months of cash on hand. The political environment doesn’t sound favorable to companies either, as perennial issues like universal healthcare coverage and the advent of cheaper generic biotech drugs appear to have a chance at becoming law.

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Seattle-based VPDiagnostics has secured a $2.9 million grant from the National Institutes of Health to run a clinical trial of its MRI-based technology for determining whether patients are at high risk of stroke. The trial is expected to enroll about 300 patients, and will track them for 18 months, says Mike Hartmann, vice president of business and product development. The technology is based on more than 15 years of research at the University of Washington.

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It was another busy week in Seattle’s life sciences scene, with a mix of stories from biotech, medical devices, diagnostics, and biofuels.

—Xconomy had the exclusive feature story on how the University of Washington is reaping a windfall of royalties because one of its inventions from the 1980s is used for manufacturing Merck’s billion-dollar vaccine, Gardasil. UW is now getting more than $40 million a year from the Washington Research Foundation, about triple the amount of three years ago, which is helping the university revitalize its technology transfer program under Linden Rhoads.

—Seattle-based Cell Therapeutics (NASDAQ: CTIC) needed to do something fast to raise the cash to keep the doors open past the end of February, so it sold the remaining 50 percent stake it owned in the cancer drug Zevalin for $18 million. Now it still has the pesky matter of finding a way to free itself of a suffocating debt load of $124 million.

—Trubion Pharmaceuticals (NASDAQ: TRBN) laid off 25 workers, about one-fourth of its staff, yesterday in order to stretch its cash reserves into the second half of 2010. The Seattle company, a developer of drugs for cancer and autoimmune diseases, will have to deal with a load of uncertainty this year as Pfizer aims to acquire its partner, Wyeth, which would put a whole new crew of decision-makers across the table.

—Redmond, WA-based Bionavitas pulled back the curtain on its secret recipe for making algae biofuels. The company is using what it calls “light immersion technology” to help algae grow efficiently in deeper pools of water, where the sun it needs to thrive usually doesn’t shine. This is still a long way off from commercial reality, but worth watching since investors like Bill Gates and Arch Venture Partners see algae as a more efficient source of renewable material for fuel than corn or soybeans.

—The Zino Society organized its first Life Sciences Investment Forum for angel investors. This event drew 12 companies to make their best pitch in 7 minutes to a room of investors. Here’s who caught the eye of the judges.

—Protein AI, a Seattle-based diagnostic startup, won a $700,000 Small Business Innovation Research grant to develop a fast new test to detect leprosy infections. The test should be on the market by the end of 2009 or early 2010, says CEO Darrick Carter.

—Seattle Genetics (NASDAQ: SGEN) checked off another goal on its list for 2009, by completing enrollment of 210 patients in a clinical trial of its SGN-33 drug for acute myeloid leukemia. This trial, which seeks to answer whether the drug can help people live longer, should provide an answer by the first half of 2010. The company also said it has begun enrollment in a pivotal study of its lead drug candidate, SGN-35, for Hodgkin’s disease.

—Here’s a scoop we had this week from San Diego-based Ambrx that has implications for its Seattle-based competitor, Allozyne. Ambrx signed a partnership to develop a new drug for multiple sclerosis with one of the big players in that disease category, Germany-based Merck KGaA. Ambrx was coy about what advantages its drug has, although it has disclosed in the past that it is working on a longer-lasting form of interferon beta drugs that would allow MS patients to take fewer injections, and suffer fewer side effects—the same goal as Allozyne.

—ImaRx Therapeutics, the Redmond, WA-based developer of a drug-device combination treatment for stroke, presented data last week at a medical meeting that it hopes will spark some interest in keeping its SonoLysis treatment alive. CEO Bradford Zakes hasn’t reported any new support from investors or partners, although he says the ImaRx presentation at the International Stroke Conference was one of the best-attended at the meeting.

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ImaRx Therapeutics, the Redmond, WA-based developer of an ultrasound-based treatment for stroke, was crushed when news broke last year that three patients suffered brain hemorrhages in a clinical trial. But on further analysis of the data, the company says the therapy showed signs of being more effective than a standard clot-busting drug alone, at least when given at a low dose.

The results were from a trial, called Tucson, of 35 patients who took two different doses of the ImaRx treatment. The study was presented by researchers today at the American Stroke Association’s International Stroke Conference in San Diego. Researchers studied patients on the ImaRx method, which uses a combination of a standard clot-busting drug together with “lipid nanospheres” and ultrasound waves delivered to the brain. Patients on a low dose of the experimental treatment were about twice as likely to have their clogged arteries completely cleared than those who took the standard clot-busting drug, tPA, by itself.

The findings suggest that the ImaRx method, called SonoLysis, deserves to be tested further in a pivotal clinical trial to see if it can help stroke patients, said Dr. Andrei Alexandrov, director of the University of Alabama’s Comprehensive Stroke Center, in a company-issued statement. Alexandrov is a co-author of the study. Stroke is the third-leading cause of death in the U.S., killing 160,000 people each year, and the No. 1 cause of adult disability, according to the National Stroke Association.

“It’s very promising to see such results,” Alexandrov said in the statement.

Researchers found that 67 percent of patients on a low dose of ImaRx’s nanospheres had their arteries completely cleared out for a full 36 hours, compared with 46 percent who did that well on a higher dose, and 33 percent who got the standard clot-busting drug alone. Patients on the company’s treatment also had their blockages cleared out faster, in a median time of 30 minutes, compared with 60 minutes for those in the control group.

There is plenty of room to question the results, however. Not only did the lower dose work better than the high dose, …Next Page »

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The Martin Luther King Jr. holiday and a historic inauguration made this week a little light on Seattle biotech news, but we still gathered some interesting nuggets.

—Seattle-based Dendreon (NASDAQ: DNDN) made news on the last day of the JP Morgan Healthcare conference in San Francisco, saying that it now expects to have final results in April from its pivotal clinical trial called Impact. This study, of 500 men, is designed to show whether the company’s experimental immune-boosting treatment can help patients with terminal prostate cancer live longer.

—Seattle Genetics said it has taken a key step toward bringing its first drug to the marketplace. The Bothell, WA-based company (NASDAQ: SGEN) said it reached an agreement with the FDA on the design of a pivotal clinical trial of its “empowered antibody” for Hodgkin’s disease, SGN-35. The company hopes to apply for FDA approval to market the drug in 2011.

—ImaRx Therapeutics, a company developing an ultrasound-based treatment for stroke, has moved from Tucson, AZ, to Redmond, WA. This company, led by former Icos manager Bradford Zakes, hit the rocks last year and was de-listed from the NASDAQ, and hopes to bounce back this year.

—I did some informal polling of 10 different biotech executives from around the country while attending the JP Morgan Healthcare Conference last week. This local installment includes some advice on how to make it through the downturn from Seattle Genetics CEO Clay Siegall, and Rick Stewart, the CEO of Cardiac Dimensions, a Kirkland, WA-based medical device developer.

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ImaRx Therapeutics, a biotech company developing a new ultrasound-based stroke treatment, has moved its headquarters from Tucson, AZ, to Redmond, WA, as it attempts to get back on its feet again after a one-two punch of devastating setbacks.

ImaRx (Imm-uh-Rex) is led by CEO Bradford Zakes, who formed his connections with the Seattle area from 2001 to 2005. He spent those years at Bothell, WA-based Icos directing outsourcing operations for the hit erectile dysfunction drug tadalafil (Cialis).

Zakes’s new company is a reclamation project—he didn’t try to pretend otherwise in our conversation—but it sounds like one with potential to make a big difference in treating stroke patients. Current clot-dissolving drugs, like Genentech’s alteplase (Activase) can only be used within about three hours of an ischemic stroke in which clots block access of blood to the brain. The ImaRx technique theoretically could be used for several hours later, giving doctors enough time to salvage significant parts of the brain from being damaged, Zakes says. Stroke is the third-leading cause of death in the U.S., killing 160,000 people each year, and the No. 1 cause of adult disability, according to the National Stroke Association.

The opportunity was big enough to entice IPO investors to buy 3 million shares at $5 each in July 2007, but things went downhill fast from there. ImaRx halted a clinical trial of its lead SonoLysis product candidate for stroke last May, after three patients developed serious bleeding episodes in the study. Then, its one commercially available product, urokinase for busting up blood clots in the lungs, was forced off the market by the FDA until thorough tests could be done to prove it was still stable after sitting around in inventory. Those events forced the company to lay off all of its 50 employees except two, and caused the company’s stock (NASDAQ: IMRX) to evaporate to just mere pennies last fall, until it was de-listed in November.

So who cares now, and what is left to salvage? Not much cash is left, just $2.4 million in the bank at the end of September, according to its last quarterly report filed with the SEC. Still, Zakes says the company has more than 100 patents, more than a decade of development work with world-leading stroke physicians, and a $500,000 grant from the National Institutes of Health to do another clinical trial. The cash should be enough to last through 2009, he says. Most importantly, Zakes sounds determined not to be written off. He has some promising clinical trial data that has been accepted as a late-breaking presentation at the International Stroke Conference next month in San Diego, which he hopes will open the eyes of potential partners and investors.

“We think we still have exciting components to build an important biopharmaceutical firm,” Zakes says.

It makes sense for ImaRx to try to get re-established in Seattle because of its long history as a hotbed of ultrasound technology, and because Zakes has strong connections as an “expatriate” from the local biotech scene, says Chris Rivera, president of the Washington Biotechnology & Biomedical Association. ImaRx still has just two employees, Zakes and an accounting director. “It’s a small company, but every one we get is a victory. We’ve got to keep the momentum going here,” Rivera says.

The ImaRx technology is designed to …Next Page »

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Northstar Neuroscience is toast. The Seattle-based medical device company, which failed to develop an electrical stimulation machine that would enable stroke patients to regain arm movement, said today its board has decided to shut down the company and liquidate its assets.

The company (NASDAQ: NSTR) will lay off most of its remaining employees as it goes through the steps of an “orderly wind down,” and stock delisting, Northstar said today in a statement. The plan, which will involve paying off remaining liabilities like its lease and clinical trial obligations, as well as distributing cash to shareholders, must be approved by shareholders at a special meeting. Northstar said it had 38 employees left at the end of July, when it made its last round of layoffs.

Northstar has been under pressure to close its doors from one of its largest shareholders, Boston-based RA Capital. Peter Kolchinsky, the firm’s managing member, wrote an angry letter to the company last month urging it to close its doors and fork over its remaining cash to shareholders. The company’s stock crashed 80 percent a year ago when it failed in a trial of its device to help stroke patients regain arm movement. Instead of liquidating, Northstar tried to regroup by cutting costs and switching its priority to using the device to treat severe depression.

Wall Street essentially gave that zero chance of success. Even though Northstar had $70.2 million in cash and investments at the end of September, investors gave the company a stock market valuation of under $27 million in early December. That’s when RA Capital started screaming to shut the company down, and spread the cash among shareholders, while it still had some left.

Northstar was founded in 1999 as Vertis Neuroscience, and the original goal was to develop electrical stimulation for chronic back pain. That product was eventually divested. In the end, the company ended up accumulating a deficit of more than $132 million through the end of September, according to its most recent quarterly report with the Securities & Exchange Commission.

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Cambridge, MA-based Molecular Insight Pharmaceuticals said today that its experimental imaging agent, when combined with standard diagnostic tests, reached its goal in a clinical trial of detecting early signs of cardiac ischemia—or reduced blood flow to the heart–which can lead to a heart attack or stroke.

Molecular Insight (NASDAQ: MIPI) said the Phase II study enrolled 510 patients who were brought to the hospital with chest pain and were suspected to be at risk of a heart attack or stroke. The patients got either a combination of a scan using the company’s imaging agent (called Zemiva) and standard diagnostic tests, or the typical workup alone. Researchers found the study reached its main goal of accurately improving the detection of ischemia over the standard of care. The results from this study, called BP-23, confirmed the findings from an earlier mid-stage study called BP-21.

Molecular Insight’s imaging product is a fatty acid attached to a radioactive molecule. Healthy heart muscle cells absorb the fatty acids and begin to metabolize them, while the unhealthy cells can’t do so—because of this, when a patient’s heart is viewed with a nuclear medicine camera, Molecular’s imaging agent shows up in the healthy tissue but not in diseased regions of the heart, helping clinicians detect damage, Molecular’s acting CEO John Babich explained to Ryan earlier this week in an interview.

The company believes this test will offer a convenience advantage over conventional testing. The standard tools enable pictures of blood flow to help doctors diagnose heart conditions, but they rely on stress tests (such as walking on a treadmill) to get the heart moving and take several hours to provide a diagnosis, Babich says. One key difference with Molecular’s product, he said, is that it can enable imaging without stress tests, and diagnostic imaging can be done 10 minutes after injection, Babich says. The imaging agent could be used to quickly diagnose some 3.5 million Americans per year who enter emergency rooms with symptoms of heart disease, he says.

Based on the positive finding in a Phase II study, Molecular Insight plans to discuss the design of a late-stage clinical trial in the first three months of 2009, Babich says. The company’s imaging agent has already been cleared for three years in Japan, and marketed under the name Cardiodine.

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Pressure is mounting once again on Northstar Neuroscience to fold up its tent and go home. The Seattle-based medical device company got hit today with an angry letter from one of its largest shareholders, Boston-based RA Capital, which urges the board to shut down the company and distribute all of its remaining cash and assets among the shareholders.

“Although you have refused to return capital to shareholders, you have put forth no viable business plan for the company. It would seem that some of you remain content to pay yourselves salaries from cash that belongs to stockholders while contributing nothing of any positive value in return,” said Peter Kolchinsky, managing member of RA Capital, in a letter to the company’s board disclosed today with the Securities and Exchange Commission.

The lack of faith Wall Street has in this company would be hard to overstate. Northstar was developing an electrical stimulation device to help stroke survivors to recover some degree of arm movement, until the device failed in a pivotal clinical trial in January. The stock crashed more than 80 percent that day.

Since then, things have gotten worse. Northstar chose to soldier on, by cutting costs, and trying to develop its device for a different use, among patients with severe depression.

RA Capital, which owns 2.5 million shares, or about 9.7 percent of Northstar, was one of the shareholders that squawked in disapproval, saying the company would be better off liquidating and giving shareholders the cash. But Northstar resisted. It still had $70.2 million in cash and investments at the end of September, and said its cost savings plan should enable the company to still have $53 million left at the end of 2009. Wall Street essentially gives this strategy less than a zero chance of success. It gives the company a market value of just a shade under $27 million-a breathtaking 60 percent less than the cash it has in the bank.

In his letter, RA’s Kolchinsky urges the company to call a special meeting of the board to ask shareholders what to do. If he doesn’t hear a response from the board by Dec. 19 about its plans for a special shareholder meeting, then RA says it will submit proposals for the next annual meeting about whether to distribute the company’s cash to shareholders, or do a share buyback.

Since July, RA Capital says it has gotten “a complete lack of response” from Northstar for its ideas. But judging from the tone of the letter, it doesn’t sound like RA is going to just sell its shares at a loss in frustration and move on.

“The only asset of value that the Company possesses is its cash; this asset should not be wasted and ought to be returned to shareholders as soon as possible that they might invest it more profitably,” Kolchinsky wrote.

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Two questions matter most to the financial survival of a biotech company: How much cash does it have in the bank, and how fast is it burning through it? That’s especially true in dark economic days, so I checked on just how well-prepared Seattle’s public biotech companies are to weather this particular storm.

The findings aren’t encouraging. Only two companies in the Northwest—Seattle Genetics and Dendreon—had more than $100 million in the bank at the end of September, according to their filings with the Securities and Exchange Commission. The last time I remember doing a local analysis like this, in February 2004 for The Seattle Times, there were six companies in the $100 million club. They were Icos, Corixa, Dendreon, Cell Therapeutics, ZymoGenetics, and Seattle Genetics.

The economic downturn, of course, is a national problem for an industry that lives and dies based on investors’ willingness to take big risks with big chunks of capital that take years to pay off, if ever. Profitable industry heavyweights like Amgen and Genentech aren’t in trouble, but of the 248 unprofitable biotechs that are publicly traded, about half have less than a year’s worth of cash on hand, according to an October report by Eun Yang, an analyst with Jeffries & Co.

“It looks like 2009 and 2010 will be pivotal years for Seattle biotech,” says Carl Weissman, president of Accelerator, the Seattle-based biotech startup incubator. “These companies have to find great partnerships that will bring in cash, or they need to cut spending, or they have to hope the financial markets turn around.” He added that several companies may have little choice but to sell at a bargain price. “Some of the signs on the front doors may be changing.”

For those of you looking for a silver lining, you can include Amgen. It has about 1,000 employees in Seattle and Bothell, a mind-boggling $9.8 billion in cash and investments in the bank, and another potential blockbuster drug being primed for the market next year. Amgen, for one, has indicated it may scoop up some of these cheap biotechs, according to this Bloomberg report.

So here’s where the 10 publicly-traded, unprofitable, Seattle-based life sciences companies currently stand, in no particular order. I left out Sonosite (NASDAQ: SONO), because it’s profitable, so cash on hand isn’t quite as vital.

—Seattle Genetics (NASDAQ: SGEN). This Bothell, WA-based company is one of the bright spots. It had $187 million in cash at the end of September, and because it generates revenue from technology licenses, it expects to still have $150 million on hand at year’s end. It is also negotiating with the FDA on a pivotal trial design for a drug for Hodgkin’s disease that has produced stellar clinical trial results.

—Dendreon (NASDAQ: DNDN). Dendreon had almost $107 million stashed away at the end of September, and collected another $20 million in a stock offering last month. It has enough cash to operate the business well past the middle of 2009, when it will get critical information on whether its lead drug candidate for prostate cancer is able to extend lives. Still, Seattle-based Dendreon has socked enough away to advance a second candidate into clinical trials, D-3263, early next year.

—ZymoGenetics (NASDAQ: ZGEN). It’s been a wicked year for this anchor of the local scene. Sales of its sole marketed product, recombinant thrombin for surgical bleeding, have been disappointing to say the least, with just $7 million expected in its first year on the market. The Seattle company had $81.1 million left at the end of September, and is burning it very fast with a quarterly net loss of $28.8 million. ZymoGenetics is able to borrow as much as $100 million from Deerfield Management, but its ability to pay off the debt depends on product sales taking off in the future. The company now has cash to last “into 2010,” which is less than its usual two-year cash cushion, says CFO Jim Johnson. To save pennies, ZymoGenetics has cancelled its holiday party and won’t put up lights this holiday season on its famous smokestacks along Interstate-5, says spokeswoman Susan Specht. …Next Page »

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Last week brought another mixed bag of news from Seattle biotech.

—Tysabri. The most effective drug on the market for multiple sclerosis isn’t sold by a Seattle biotech company, but it has its origins in a lab here at the Fred Hutchinson Cancer Research Center.

—ZymoGenetics had yet another good news/bad news week. The Seattle biotech company said its pegylated interferon lambda drug for hepatitis C was able to kill the virus in a trial of 18 patients, without any of the flu-like symptoms associated with standard interferons. But the next day, it said it sold just $1.8 million worth of recombinant thrombin, its only marketed product, in the third quarter.

—We occasionally like to take a close-up look at clusters within the Seattle region, and this week I did a census of the local ultrasound industry. About 5,000 people are now employed at 15 companies in the area we counted. If you know of more, please drop us a line at editors@xconomy.com

—MediQuest Therapeutics passed along some bad news Friday afternoon when it said its drug for Raynaud’s disease was rejected by the FDA. The privately-held Bothell, WA-based company didn’t say what the FDA’s questions were about the Vascana application, but it plans to meet with the agency to determine its next steps.

—Did you know poor people can legally get prescription drugs in this country for half-price? I didn’t know about it until the folks at Portland, OR-based Wellpartner, a mail-order pharmacy, explained how they’ve found a way to help clinics that serve poor people to handle the bureaucratic red tape to get this deal. This is one reason why Wellpartner has tripled in size over the past year, and attracted investments from Seattle-based Integra Ventures and Buerk Dale Victor.

—Northstar Neuroscience announced to investors this week that it doesn’t plan to just curl up and die. The Seattle-based medical device maker, which was under pressure from an activist shareholder this summer to sell itself, says it expects to have $66 million in cash left at the end of the year, and that it will still have $53 million left in reserves at the end of 2009. The company is developing its electrical stimulation device for severe depression, after an earlier trial failed in stroke patients.

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Northstar Neuroscience, a Seattle-based maker of a brain-stimulation device for severe depression, said today it had $70.2 million in cash and investments at the end of September, and that it expects to end this year with $66 million on hand, and close 2009 with $53 million. The company (NASDAQ: NSTR) has cut costs and switched its priorities to studying depression, after a final-stage clinical trial failed to demonstrate its device could help restore arm movement in stroke patients.

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Northstar Neuroscience, a Seattle medical device company, said today the FDA has given conditional approval to run a second study of its brain-stimulation device against depression. Northstar (NASDAQ: NSTR) said it plans to start enrolling the first of 24 patients in the study, called Prospect II, before the end of the year. Preliminary results should be available in the second half of 2009. The company switched its strategy this year to focus on depression after a pivotal study failed to restore arm movement for patients recovering from strokes.

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Northstar Neuroscience said today it is cutting 34 percent of its workforce, scrapping development of its brain stimulation device for stroke patients, and switching gears to develop the technology for patients with depression. The Seattle company is left with 38 employees, and planning to sublease 40 percent of its office space. As we reported earlier this month, Northstar is fending off a takeover bid from a shareholder that wants to buy the company for less than the amount of cash it has in the bank. Northstar said it had $74 million left at the end of June.

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