Skip to main content
Premium Trial:

Request an Annual Quote

Pyrosequencing Straps on the Blinkers an In Effort to Save Cash

Premium

At A Glance

Name: Mats-Olof Wallin

Title: CFO, Pyrosequencing

Education: MBA, Upsalla University

Background: CFO, patient-informatics company Ortivus

Age: 51

Like most other young pharmacogenomics-technology companies these days, Pyrosequencing is on a mission to save money. In April, the Swedish genotyping-tool maker acquired a substantial chunk of a thermocycler and sample-prep shop in hopes of increasing its own core European customer base and boosting revenue.

Last week, despite posting strong revenue growth, Pyrosequencing shed 35 of its R&D staff — and said to expect more — as it begins whittling away at cost centers. That day, it announced plans to spend around $11 million in stock to buy neighboring organic chemistry company that will also likely bolster its customer base.

Still, Pyrosequencing’s CFO, Mats-Olof Wallin, said the firm is single-minded in its pursuit of black ink — if not cash flow-positive status. To that end, he said, Pyrosequencing’s sales force will get a mild boost, just in time for an increase in Corbett- and Personal Chemistry-related sales he expects in the third and fourth quarters.

SNPtech Reporter caught up with Wallin this week to talk about the direction Pyrosequencing is headed.

Pyrosequencing has experienced strong revenue growth during the first two quarters of 2003 compared with the same 6-month period last year [read SNIPPETS, page 8 for Q2 data]. However, the company last week said it planned to lay off 35 staffers in Upsalla, with more likely to come over the rest of the year. How does Pyrosequencing justify the layoffs to investors and to customers, and assure them that their investment and their collaborations are safe?

The company has for the whole of its life been running at a loss, and there is quite the demand [from investors] that the company should increase its efforts to break even. Despite the revenue increase, the company still is at a substantial loss — and has been. And, to speed up the time before we reach a positive net result and a positive cash flow. That’s why we decided to lay off 35 individuals in Upsalla.

When does Pyrosequencing expect to become cash-flow positive?

Pyrosequencing has acquired Personalized Chemistry — a drug-discovery company in the biotech area-and together with the synergy effects and the cost savings in this merger, the company announced that the intention is to reach a positive cash-flow results sometime during 2004.

Pyrosequencing also had very strong growth in R&D spending during the first half of the year compared with the first half of 2002. Considering that most of the employees sacked last week were from the R&D group, were these increases in R&D spending responsible for the company’s decision to initiate the layoffs?

Not really. The company in total announced increases in R&D spending. However, the background to that depends quite a lot on accounting principles that the company applies. And the company capitalized substantial R&D spending in 2002, due to the finalization of some of the R&D projects. So there was quite substantial capitalization in the first half of 2002 and that was not the effect in 2003. But the actual spending has gone down — the net result has gone down.

In 2002, Pyrosequencing spent about $8.2 million in R&D, which is considerably less than all of the other eight publicly traded genotyping or haplotyping companies in the world, and far below the industry average. Keeping in mind what you said a minute ago — about the company’s determination to break even — can Pyrosequencing afford to further cut R&D spending, either through investment cutbacks or head-count cutbacks?

That’s a very relevant question. The company has decided to substantially reduce R&D spending because it is of the opinion that the major R&D projects that require substantial spending are behind us. We do not see in the short term that we are going to spend a lot of R&D money on substantial projects. So, I think the company believes that we have a very competitive product range in this area at the moment, and we think that will last for several years.

There is a strong demand to speed up the time until we reach break even, and that has very much determined the position to reduce spending. And the spending will not only be reduced in R&D; there will also be substantial savings in administration and office-based staff in Upsalla. We are not, however, cutting back on our sales force — that will even be further increased.

You said the staff reductions will save the company around 70 million krona ($8.5 million) annually. Will these saving go to refill Pyrosequencing’s coffers or to buttress the company’s cash position? [As of June 30, the firm had 97.1 million krona, or $11.8 million, in cash, bank balances, and short-term investment.]

Pyrosequencing has substantial cash right now. The objective is not to further reduce that cash because, right now, it’s not an appropriate time to ask for more capital investment for our type of industry. The cash that we have on hand, we use it for other purposes, maybe — we don’t spend it on losses in the business.

We’ve established that R&D is a loss area. What are these other purposes you mention? Where might you put money?

I think that’s open. We have now decided to acquire Personal Chemistry, and we have made a substantial cash investment in … Corbett. We now own 17.5 percent of that company, and we have a distribution agreement for Corbett’s product line — which is the same customer and target group as Pyrosequencing’s customers — both in the North American markets and in major market in Europe. We started to market these products in North America in April, and we have now launched this product range in Europe in July. So, hopefully, we will begin to see the benefits of that in the third quarter, [and] to a larger extent in the fourth quarter.

You said that the recent layoffs did not affect Pyrosequencing sales people. You even said the company would increase the number of sales people soon. How many people do plan to hire, and where will they be located?

One or two more. One will be based in Europe and one will be in North America, for the time being.

Pyrosequencing said in its second-quarter conference call last week that sales in the United States were strong, but sales in Europe were very weak. Does this mean that your salespeople will begin focusing more of their energy onto the European market, or will you wait until that marketplace starts to regain some of its footing before you commit any more staff there?

We had a turnover in our sales staff, and now we have geared up and have momentum with a partially new sales organization. Also, we think that the Corbett product line will help us increase sales in Europe. The European market as a whole has been rather weak. But I think we can see some positive signs right now.

What percentage of Pyrosequencing’s global sales is in Europe?

In the second quarter, I think we had 70 percent US market dominance — that is, 70 percent of our product sales is in the United States. Thirty percent of our product sales is in Europe and Asia. We have sales staff in Sweden who are focusing on Asia, but for the time being our main focus will be Europe and North America.

 

Editor’s note: In April, SNPtech Reporter published a financial snapshot of nine SNP-genotyping companies [See tables here]. That report tracked and compared revenue, R&D spending, cash on hand, as well as R&D spending as a percentage of revenue and cash on hand in these nine shops for fiscal year 2002.

Today’s interview is the fourth of nine sessions with chief financial officers for each of these companies — Lynx Therapeutics, Orchid Biosciences, Genaissance Pharmaceuticals, DeCode Genetics, Sequenom, Illumina, Pyrosequencing, Third Wave Technology, and Transgenomic.

The goal of these interviews, which are conducted soon after each firm releases its mid-year earnings report, is to shed light on the financial health of the companies mid-year, and to gauge projections for the second half.

 

Filed under

The Scan

Interfering With Invasive Mussels

The Chicago Tribune reports that researchers are studying whether RNA interference- or CRISPR-based approaches can combat invasive freshwater mussels.

Participation Analysis

A new study finds that women tend to participate less at scientific meetings but that some changes can lead to increased involvement, the Guardian reports.

Right Whales' Decline

A research study plans to use genetic analysis to gain insight into population decline among North American right whales, according to CBC.

Science Papers Tie Rare Mutations to Short Stature, Immunodeficiency; Present Single-Cell Transcriptomics Map

In Science this week: pair of mutations in one gene uncovered in brothers with short stature and immunodeficiency, and more.