The credit crisis is threatening the number of new medicines coming to market as funding for biotechnology companies declines.

Investment in drug research is seriously threatened as investors become more risk-averse amid the economic meltdown, according to the Economic and Social Research Council (ESRC).

At the same time, the world's pharmaceutical giants are making huge cuts to their workforces. Although the bulk of the estimated 60,000 cuts worldwide in the past few years has been to salesforces, there have been cuts to research and development. GlaxoSmithKline, the world's second-largest pharmaceutical company, announced this month that it would cut 850 jobs in research and development.

David Wield, director of the ESRC's Innogen Centre, said: “Like many other sectors, the pharmaceutical industry has had tough times ... there is seemingly no way to speed up and improve the drug discovery pipeline, and heavily increased R&D has not increased the number of new drugs. As a result, big companies have been laying off staff and closing down research units, instead of looking to biotechnology start-ups for new ideas.”

While this could give some biotech companies a better chance of getting their drugs to market, those that fail to secure a deal with a big pharma company will now have even less chance of getting their medicines approved.

Andy Smith, healthcare fund manager at Axa Framlington, said: “An AIM-listed company in the UK is likely to need to be able to raise cash soon, as they tend to have less cash than in the US. They will have problems as investors are more risk-averse than in the States and market conditions will be much more difficult than when they last raised money.”

Biotech is notoriously risky to invest in. While financing of biotechnology companies hit $50 billion (£31.4 billion) worldwide in 2007, the biotech industry made profits for the first time only last year, with just $1 billion on revenues of $59 billion.

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