Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

An ugly Catch-22 is emerging in biotech markets: Firms need to sell shares to raise cash, as they always have. But the few companies that dare to sell shares in a weak market are getting punished for it.   

Stock prices for the industry are still very much in the dumps; the Nasdaq Biotech Index is down 19 percent year-to-date and 31 percent from its peak last summer.

Biotech stocks are substantially underperforming the broader market. Percent appreciation.
Source: Bloomberg

OvaScience and Aldeyra Therapeutics continued a worrisome trend on Thursday by selling already depressed shares at a discount and getting a market spanking. OvaScience and Aldeyra shares fell as much as 30 and 10 percent, respectively, in trading Thursday. The days when a biotech secondary offering actually led to a share-price jump are long gone.  

Unless things perk up in biotech-land, this is going to mean cash crunches, cost-cutting, and unwelcome shareholder dilution for meager gain for many companies. 

Dry Well
Two biotechs are finding out about the market's limited appetite for share sales, the hard way.
Source: Bloomberg
Intraday times are displayed in ET.

Firms that can afford to wait are staying far, far away from equity markets. So far this year, 64 biotechs have sold shares through secondary or additional offerings valued at a combined $2.6 billion, according to Bloomberg data. Over the same period last year, 106 firms had raised nearly $9 billion. In all of 2015, 228 companies raised more than $16 billion. 

Boom to Bust
Biotechs have been reluctant to tap equity markets for cash so far this year.
Source: Bloomberg

IPOs have similarly hit the skids. There have been 8 biotech market debuts this year that have raised $483 million, compared to 17 IPOs raising $2.03 billion through May 26 last year. 

Another concern? The discounts required to sell these shares.

OvaScience priced its offering at $7 -- a steep discount to its $9.78 closing price on Wednesday, after having fallen more than 70 percent over the past year. These dilutive offerings often aren't actually raising that much money for firms that may need to feed the R&D furnace, hire staff, or build a sales team. These companies may be forced to make choices that lessen growth potential to stretch the money they have.  

Alternatives are often unavailable or unattractive. It's difficult and perhaps unwise for early stage biotechs to borrow money. Lenders are leery of firms that don't have approved drugs, and even companies that have managed to get a drug on the market still face the possibility it won't be a commercial success. Relypsa, a Bay Area biotech that recently launched its first drug, saw its shares decline as much as 18 percent after raising $150 million in senior secured loans. 

Biotechs are caught between a rock and a hard place. For many, the only option is to cross fingers and hope for a rally before the cash starts to dwindle. If it doesn't happen, expect to see some fire sales of smaller companies. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Max Nisen in New York at

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Mark Gongloff at