Early-stage companies hurting for cash, while some older ones manage to conserve capital
Friday, May 22, 2009
Arizona’s growing biotech industry has hit a bump in its roadmap as the economy is causing several biotech firms to lay off employees.
Industry experts say early-stage biotechs are getting hit hardest, while more established firms are faring a bit better. Some even have multiple job openings.
“We just have to watch it very closely to make sure the recession doesn’t totally decimate these companies,” said Saundra Johnson, executive vice president of the Flinn Foundation, which commissioned the Arizona Bioscience Roadmap to track the industry’s progress. “It’s too early to tell how long this is going to last. They’ve got to conserve capital.”
Cutting back
Capstone Therapeutics announced May 11 that it laid off five full-time and two part-time employees to provide more capital for clinical trials. The company, founded in 1987 as OrthoLogic Corp., now employs 22.
Jock Holliman, executive chairman of the Phoenix-based company, said Capstone is trying to preserve cash, but spent more in first-quarter 2009 than during the same period in 2008. The increased spending was for clinical trials to test its AZX100 compound to treat scars, pulmonary disease and thickening of blood vessels.
Capstone, which trades on the Nasdaq system under the symbol CAPS, ended first-quarter 2009 with $43.6 million in cash and investments. The company’s stock was trading at about 67 cents this past week.
“We’re spending money very slowly,” Holliman said. “It was painful to go through this reduction in force, but it was necessary to put some more money this year into our clinical programs.”
Jeff Morhet, chairman and CEO of InNexus Biotechnology Inc., said the past few months have been especially tough. His company has cut about a dozen people, or 35 percent of its staff, this year.
“The vast majority of scientific programs that are truly the translational programs of science into medicine — that’s what the biotech industry is — have essentially stalled,” Morhet said.
Since its inception in 2003, InNexus has raised $17 million in venture capital and now has a commitment for $35.5 million from Royalty Pharma.
Jason Bonanza, CEO of Dedicated Phase I, is looking for an account executive or sales administrator this year, but he has let two or three lower-level research assistants go in the past year.
Bonanza founded the company in 2006. After a few years of experience, he started using some contract workers on an as-needed basis to keep overhead low.
“I think more people could start to sell themselves as contractors or consultants in many areas to help fill the need of companies, while working when they want to and for what they want to,” he said.
Conserving cash
Bob Eaton, CEO of the Arizona BioIndustry Association, said what’s happening in Arizona is no different from what’s happening to biotech firms nationwide. He said companies are trying to conserve as much cash as possible because it’s a very difficult time to get investment dollars.
“I’ve heard bits and pieces about layoffs here and there, but I have not heard anybody changing their focus or their strategy,” Eaton said. “Companies right now are certainly always looking to partner with anybody they can partner with to try and advance their product development.”
Tucson-based BioVigilant Systems, which recently began marketing its microbial detection equipment to pharmaceutical firms and medical device manufacturers, did just that.
Tokyo-based Yamatake Corp. bought a 70 percent stake in BioVigilant. This deal provides BioVigilant with the funding, along with the engineering and manufacturing resources, to pursue the multibillion-dollar environmental monitoring market in pharmaceutical and medical device manufacturing.
Yamatake has been BioVigilant’s distributor in Japan since 2008.
Founded in November 2002, BioVigilant has raised $14.9 million from private and institutional investors. Late last year, the company’s investors were looking for an exit, said CEO Dewey Manzer.
“I approached Yamatake to see if they were interested, and they said they were,” he said. “One thing led to another, and now Yamatake is buying the controlling interest accompanied by a commitment to provide working capital for BioVigilant for the next three years.”
BioVigilant has 27 employees and plans to add 10 in the next 12 months, Manzer said. The additions will be high-income jobs, including engineering, sales, regulatory and quality positions.
“We’re just very pleased with this step, and we expect that Yamatake will be a very positive corporate partner in Arizona,” Manzer said. “It’s a bright spot for Tucson and all of Arizona.”
The entire BioVigilant management team will remain in place, but will get additional human resources by conducting joint projects with Yamatake’s engineering and manufacturing teams.
Manzer said BioVigilant’s customer relationship with Yamatake was crucial for taking their partnership to the next level.
“The sooner you establish a major customer relationship, that paves the way for you and gives you credibility,” Manzer said. “I think at this point, we’re going to see very positive reaction from the industry that we serve, because now they’re going to say we have the credibility of a $2.5 billion company behind BioVigilant.”
Shared commitment
Jonah Shacknai, chairman and CEO of Medicis Pharmaceutical Corp. in Scottsdale, said he hasn’t worried about gaining access to the capital markets for many years because his company is sitting on half a billion dollars in its treasury.
Founded in 1988, Medicis had a record 2008. Even though it is more than two decades old, it still faces some challenges. Sales have been down for the company’s Restylane product, a nonsurgical prescription dermal filler for lines and wrinkles.
Shacknai acknowledged the Restylane franchise has been soft because consumers are tightening their purse strings during the recession.
“We have managed expenses to compensate for the lost revenues in that sector,” he said.
He said the companies that survive are those whose management and employees have the willpower and passion to see things through.
“It’s a time never to be proud (and) never be on a high horse,” Shacknai said. “The CEO needs to be washing dishes with everyone else to really demonstrate there’s a shared commitment to the future, and everyone pitches in.”
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