Ebb & Flow

While biotech companies are great spenders, a select few have done a good job accumulating cash, thanks to a steady flow of product/royalty revenue. Amgen (AMGN), Alza (AZA) and Genentech (GNE), for example, are three biotech companies with cash balances over $1 billion as of June 30. GNE and AMGN lead the pack, each with $1.2 billion in cash, cash equivalents and long-term investments. AZA is third with $1.02 billion.

AZA's ranking may change this quarter, as it has an option to buy back R&D spinoff Therapeutic Discovery (TDCA) for $100 million. If the option is exercised, AZA would be obligated to funnel $300 million into a new spinoff, Crescendo Pharmaceuticals.

In general, companies are "legally free to invest their money in anything they want," said William Morrow, partner at the law firm of Cooley Godward, as long as the company was acting with good business judgement. But when it comes to managing the funds, interviews with several companies indicate an extremely conservative cash management policy, restricted to U.S. Treasuries and corporate debt (see chart).

Bennet Weintraub, former finance director at Metra Biosystems (MTRA), reminds that the main goal should be preservation of capital and liquidity: "You're not going to gamble away your dinner money. If you lose it on speculation, you're out of a job."

Weintraub, now CFO at Technology Modeling Associates Inc., a maker of modeling software for integrated circuit manufacturers, said the "the first objective is safety, a secondary objective is liquidity, and third should be return" on investment."

According to AZA's Michael Boennighausen, the company invests principally in U.S. Treasuries, government agency