Viragen, the Edinburgh cancer therapy pioneer, is facing a cash crisis that could drive it into bankruptcy by the end of the month, The Herald has learned.

The company has already shed many of its staff, curtailed its operations and abandoned some of its most promising lines of research.

In a flurry of filings this week with the US Securities and Exchange Commission, Viragen revealed that it has lost more than $26.7m (£13.4m) in the nine months to March 31, 2007, while earning less than $300,000, and that it has a working capital deficit of more than $1.1m.

The company also disclosed a notification from the American Stock Exchange (Amex) that its shares will shortly be delisted for failing to meet that exchange's capital adequacy rules.

Viragen, which has lost more than $193.8m since its inception, is best known as the co-developer, with the Roslin Institute, of cancer treatments derived from the eggs of genetically engineered chickens, and was praised as recently as February by then Deputy First Minister Nicol Stephen as an example of Scotland's "key strengths in life sciences".

In its statement to the SEC, the company revealed the extent of the cash crisis, noting: "We believe we have sufficient cash to support our operations, including those of our subsidiaries, through June 2007.

"However, we will require substantial additional capital to support our operations subsequent to June 2007. No assurance can be given that additional capital will be available when required or upon terms acceptable to us."

Viragen's filings note that the company has already begun staff reductions in Edinburgh and associated offices in the US and Sweden, is attempting to withdraw from lease obligations or sublet unused space, and has begun to defer or abandon many of its research and development activities.

Among the projects Viragen has abandoned is its collaboration with the Roslin Institute to grow genetically-modified eggs whose whites contain high volumes of therapeutic proteins used in cancer care. The OVA project received worldwide publicity earlier this year when an influential US genetic journal reported positive results from early laboratory trials.

Viragen announced that it would withdraw from the OVA project in a press release issued quietly in Florida earlier this week. The company received £916,000 in two SPUR-Plus grants in 2002 and 2004 from the Scottish Executive to pursue its research.

Earlier this year, Viragen abandoned another research partnership with the US's prestigious Memorial Sloan-Kettering Cancer Centre, in which Viragen had spent more than $1.5m to research means of combating hard-to-treat solid tumours.

Viragen, which is now operating with a skeleton global staff of 46, was founded in Florida in 1985 and was one of the earliest large-scale life sciences investors in Scotland, beginning with small labs for development testing, then opening a 17,000 sq ft laboratory and manufacturing plant in Edinburgh's Pentland Science Park in 1995.

The company's Scottish research programmes are headed by Dr Karen Jervis, a graduate of both Glasgow and Edinburgh Universities, who was named one of Scotland's top 50 businesswomen in 2001.

Jervis yesterday declined to comment, and referred The Herald to the company's head of communication, Douglas Calder, in Florida. However, Calder could not be reached for comment last night.

Like IVMD, the Inverness-based medical device creator whose financial difficulties The Herald revealed earlier this month, Viragen has encountered problems evolving from a lab-for-hire to a commercially viable independent developer.

PPL Therapeutics, another joint venture with the Roslin Institute that once held the attention of the world for its part in the controversial cloning of Dolly the sheep, ran into financial trouble in 2003 and was eventually taken into private ownership with more than £7m returned to long-suffering shareholders.

The only drug which Viragen has been able to commercialise - Multiferon, a treatment for high-risk malignant melanomas - has been licensed to distributors in a number of territories, including the EU and Australia.

However, the majority of those distributors have not yet been able to push the drug through local regulatory approval. As a result, Viragen has not yet received any meaningful revenues from the drug, nor is it likely to do so in coming months.

Viragen's shares traded up at 52 cents earlier this year on Amex, which, like its competitor Nasdaq, is home to many speculative, research-driven companies.

However, as news of the company's cash problems spread, the stock fell to single-digit levels and now trades at $0.04 per share.

Viragen has been issuing shares to creditors in lieu of cash for more than a year, quadrupling the number of shares in issue, which has further depressed prices.

The majority of these shares have been issued to back the sale of convertible equity warrants - instruments which pay interest like bonds but allow the holder to redeem them for stock should share prices recover.

Viragen has raised more than $28m by selling such warrants in the past year but has been forced to pay annual interest of between 18% and 24%, reflecting buyers' concerns about the risk of default.

Delisting may close that route to funding for Viragen, which is appealing the Amex exchange's pending ban.

Being forced on to the over-the-counter market, a home to penny stocks in the US, would trigger immediate demands for more than $1.1m from certain warrant holders, according to Viragen's notes to the accounts, and could result in stock sales from many institutional holders, some of whom are forbidden by US law from holding OTC stocks.

Viragen has admitted that it is now considering bankruptcy protection in the US in order to gain time to reorganise, and is "investigating and pursuing transactions including mergers, asset sales and other business combinations" which might allow the company to stay afloat.

Further announcements are expected in the next fortnight.