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Despite Grim FY 04 Earnings Forecast, Lion Says Cost-Cutting Will Yield Q4 Break-Even


Lion Biosciences is fastening its fiscal seatbelt and preparing for a bumpy ride over the next nine months.

The company, which has pledged since 2001 to break even by the fourth quarter of its 2004 fiscal year (which ends in March 2004), reported first-quarter revenues well below its expectations on Aug. 1 and slashed its annual revenue expectations from €40 million ($45 million) to €27.5 million ($31.2 million). Nevertheless, said Lion CEO Friedrich von Bohlen, “Our core financial targets remain unchanged.” In a conference call to discuss the Heidelberg, Germany-based company’s first-quarter earnings, von Bohlen reiterated the company’s goal to reach break-even by the fourth quarter and move into profitability for the 2005 fiscal year.

With the sales outlook bleak, drastic belt-tightening remains the key to Lion’s financial strategy. The company said it would close its development site in Columbus, Ohio, and transfer the remaining resources from that facility to Cambridge, UK, and Heidelberg. As of June 30, 40 people were employed at the Columbus site and Lion had a total of 314 employees. As of Aug. 1, the company’s headcount was 298. By December, that number is expected to drop to 250, said CFO Martin Hollenhorst.

“I apologize for having to close another site, but this is a business decision,” said von Bohlen, who had claimed earlier this year that the company expected to wrap up its restructuring in July [BioInform 05-19-03].

Lion’s first-quarter statement of operations already reflects the results of the streamlining effort that began last year. Quarterly costs and expenses decreased 54 percent — from €19.8 million in Q1 ‘03 to €9.2 million in Q1 ‘04 — while net losses before taxes shrank 60 percent over the same period — from €16.0 million to €6.3 million.

Overall, said von Bohlen, the company ended up with “better than expected results despite the lower sales figure” — €3.9 million for the quarter ended June 30, 2003, compared to €7.3 million for the year-ago period.

Lion cited “the depressed investment climate in the life sciences industry,” the lengthy sales cycle for its recently launched Target Engine product, and the impact of the strong euro vs. the weak dollar as factors in the revenue drop-off. Revenues from Lion’s multi-year partnership with Bayer, which expires June 30, 2004, made up 48 percent of its total revenues for the quarter.

Although Lion’s earnings guidance of €27.5 million for the 2004 fiscal year comes in lower than its 2003 annual revenues of €30 million, the company’s cash holdings — €65 million as of June 30, 2003 — are expected to be €35 million at the end of the business year. This is an improvement over the company’s earlier projection of a cash position of €30 million by that time.

Citing an “investment idle” in both the pharma and biotech sectors for informatics products, von Bohlen said the company is essentially girding for the worst-case economic scenario. “We are able to break even and be profitable as long as the industry is not picking up…We’re preparing to take a year or two or longer to be there, and if it picks up, to grow proportionally when that market comes.”

The company also has a plan B, however. Noting the “shift from research to development” in pharmaceutical companies that has made “IT not so important for them to invest in,” von Bohlen said that Lion has an R&D project in the works to address the later stages of the drug discovery pipeline. “We have one program in place that is early, it can’t be discussed yet, but we’re thinking about how we can also approach the later stages, the development stage,” he said.

— BT


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