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UPDATE: MediChem to Cut Staff by 25 Percent in Restructuring and Laboratory Consolidation

NEW YORK, Sept. 20 – MediChem Life Sciences said Thursday it has cut 25 percent of its workforce and will reduce other operating expenses in a restructuring plan designed to save the company $5.5 million in 2002. 

The staff reductions “affected all functional areas in the company,” Richard Wieland, executive vice president and chief financial officer of MediChem, told GenomeWeb. The most significant reductions were associated with the consolidation of MediChem’s laboratory operations in the Chicago area. 

“We’re realigning the infrastructure to better fit with the softness in revenue,” said Wieland, who attributed the company’s revenue problems to a “soft” economy and consolidating pharmaceutical companies that are less willing to outsource drug discovery services. In addition, MediChem’s foray into proteomics has not resulted immediately in revenue growth, because the research is more complicated and requires more time to see results, Wieland said.

MediChem, a 14 year-old drug-discovery company based in Woodridge, Illinois, outside Chicago, is building capabilities in protein structure determination and biocatalysis around its traditional focus on medicinal chemistry. Last year, the company acquired Emerald BioStructures, a Bainbridge Island, Wash., company studying protein structure using x-ray crystallography, and Woodridge-based ThermoGen, which specializes in protein expression and biocatalysis.

“Proteomics is farther upstream in drug discovery, and obtaining business in that area is more intellectual property driven,” he said. “The cell-cycle is more complex and complicated, so it takes longer [to see revenue from the business].”

The staff reductions are expected to produce annual savings of approximately $3 million, and the additional planned cuts in operating expenses should result in further savings of $1.9 million in general and administrative expenses, and $600,000 in sales and marketing expenses. MediChem expects the restructuring to save the company $1.1 million in the fourth quarter of this year, and $5.5 million in 2002. 

To allow for severance costs resulting from the staff cuts, the company expects to record a charge of $650,000 in the third quarter. 

In consolidating the company’s laboratory facilities in the Chicago area, MediChem closed a laboratory near Chicago’s O’Hare airport, as well as ThermoGen’s laboratory in downtown Chicago. Employees and equipment from the closed laboratories will move to a new facility in Woodridge.  
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