Lynx Therapeutics has been revived for the immediate future by a prescription that includes more than $24 million in new financing and a 30 percent cut in its workforce of 200 people.
The ailing Hayward, Calif., microbead company had only $5.5 million in the bank at the end of 2001, and said bluntly in its annual report, filed March 29, that this cash would “soon be exhausted if we fail to secure additional financing within a month.”
Fortunately for Lynx, its investment bank Friedman Billings Ramsey secured an initial $22.6 million last week, including the sale of 14.6 million shares of common stock at $1.55 per share, and warrants to purchase 5.8 million shares at $1.94 per share. This was followed by another million-share sale after the initial funding round was announced, at $1.55 a share, according to Jonathan Aschoff, a New York City-based senior analyst at Friedman Billings Ramsey.
This financing round added to $2.5 million the company raised through the March sale to Geron of its antisense-related patents, which it no longer needed because it previously sold its antisense RNA business to Inex.
“From a financial position, we had to raise money, and we raised the money,” said Aschoff.
But along with this spoonful of financing sugar came the bitter taste of staff cuts, which Lynx chose to make by laying off 30 people involved in its internal gene target discovery and validation. This business was not only unsuccessful so far, failing to yield any targets, according to the company’s annual report, it was also failing to generate badly needed revenues.
These cuts were “designed to allow us to focus on [Massively Parallel Signature Sequencing] and late-stage development of our proteomics technology,” said Norrie Russell, Lynx’s CEO.
“A lot of people, and Lynx as well, felt that it was important to focus on generating revenues,” Aschoff said. “[MPSS and ProteinProfiler] are the technologies that will make money.”
Lynx’s MPSS technology, the brainchild of scientist Sidney Brenner, consists of tags that attach to the ends of DNA fragments in the sample to be studied, and complementary antitags that are added to microbeads. The tagged fragments hybridize to the antitags, and the beads are directed into a flow cell, where the fragments are sequenced using Lynx’s sequencing instrument. The sequenced fragments are then counted to see how much of a certain transcript is present in each sample. The core bead technology involved in MPSS, which the company calls “Megaclone”, has also been adopted for use in gene expression profiling (MegaSort), SNP genotyping (Megatype), and proteomics. The company markets this technology as a service.
Lynx additionally has a ProteinProfiler technology, for which it is seeking a “late stage development partner,” according to Russell, as an alternative to 2D gels. The technology involves 2D solution-phase separation using a microchannel glass plate, and is 12 to 18 months away from coming to market, Russell said.
Lynx Increases Revenues, Losses in 2001
Lynx’s lifesaving infusion of cash comes as the company begins to bring in revenues, according to its annual report. The company’s total revenues for 2001 were $19.25 million, up 53 percent from 2000. The lion’s share of these revenues — $18.37 million —came from its technology access and service fees from its collaborators, and the remaining $882,000 came from licensing fees and collaborations.
In 2001, the company also incurred R&D expenses of $24.66 million, up from $19.76 million in 2000, as well as increasing general and administrative expenses ($7.5 million compared to $6.17 million in 2000) and slightly higher costs of revenues ($4.12 million compared to $3.65 million for 2000). As a result, the company’s net losses increased by more than 25 percent to $16.73 million, from $13.3 million in 2000.
Lynx said in its annual report that its R&D expenses will continue to climb “due to planned spending for ongoing technology development and implementation, as well as new applications.” Russell did not indicate whether the recent decision to pare down the company’s business to its MPSS and Protein Profiler technologies would affect R&D expenses, but presumably the staff reductions will decrease the company’s sales and administrative expenses and in the short-term, will at least offset growth in total expenses — a necessary prerequisite for Lynx’s remaining in business.
Survival Rides on Successful Collaborations
Lynx has obtained most of its revenues from a handful of key collaborators: DuPont (31 percent of Lynx revenues in 2001, 51 percent in 2000); BASF (24 percent in 2001, 29 percent in 2000); Takara (12 percent in 2001), The Institute of Molecular and Cell Biology in Singapore (12 percent in 2001); and Aventis CropScience (11 percent in 2000).
The least of these collaborators, Aventis, could turn out to be among the most important, as it just extended its collaboration with Lynx for five years to perform genomics discovery and develop an agricultural assay. This assay, to detect microbial plant parasites, could have wide commercial applications, and Lynx could derive significant long-term revenues for it.
Lynx said in its annual report that it will receive $8 million to $35 million from DuPont over the next two years, up to $20 million from Aventis over the next five years, up to $8 million plus additional microarray royalties from Takara for the next three years; and unspecified fees from its collaboration with BASF, which has been spun out into a company, Axaron. These collaboration fees could total less than $11 million or over $25 million per year for 2002 and 2003. The numbers make it clear that Lynx will need to add a few collaborators to develop commercial uses for its technology in order to generate enough revenues to stay afloat over the long run. If the company currently has $26 million to $30 million in the bank (proceeds of the fundraising round and the antisense patent sale, as well as revenues from ongoing collaborations), and will be able to cut current expenses by 25 percent, through its staff cuts and other fiscal restraint, from its 2001 expenses of $36.28 million, it will need to maintain revenues of $5 million per quarter on average, or $20 million per year to make its cash last through 2005. The company could also increase its revenues more sharply by gaining a few new major collaborators, and cut expenses less, to arrive at roughly the same cash burn rate.
Even so, relying on a few large partnerships opens up Lynx to tremendous vulnerability. In its annual report, Lynx stated, “We do not have the resources to develop or commercialize diagnostic or therapeutic products on our own. If we cannot negotiate additional collaborative arrangements or contracts on acceptable terms or at all, or such collaborations or relationships are not successful, we may never become profitable.”
This week, Lynx gave an initial signal that it is working to widen its circle of collaborators, announcing a new partnership with Wilex of Munich to use MPSS to identify genes regulated by WX-G250, a lead compound for renal cell carcinoma. The partnership will be administered through Lynx’s German subsidiary, Lynx GmbH. Wilex, a biopharmaceutical company, is currently testing this compound in multiple phase II clinical trials of renal cell carcinoma patients.
If Lynx continues to attract new collaborators like Wilex, its new lease on life just might lead to long-term success.