Lion Bioscience’s newly appointed supervisory board, led by former CEO Friedrich von Bohlen, held its first meeting on Nov. 11. Within a week, the company confirmed its plan to delist its shares from the Nasdaq exchange, rearranged an executive management team that had been in place for just over a month, and announced plans to lay off around half of its remaining staff over the next year.
The changes, which turn Lion into a top-down holding company, were driven by a single goal, the company said: reaching profitability in its 2005/2006 fiscal year, which ends March 31, 2006. Lion said on multiple occasions over the past year — and as recently as its latest quarterly earnings report on Nov. 4 — that it was on track to reach this milestone with its current headcount of 140. But these hopes, it turned out, depended on closing certain deals in the current quarter that now appear out of reach.
“It became apparent within the last two weeks that some anticipated deals or orders could only be signed with difficulties or certain delays,” said Thure Etzold, the company’s newly appointed CEO, during a conference call last week to discuss the restructuring. Etzold said that the new executive team, which includes himself and CFO Peter Willinger, met with the supervisory board on Nov. 17 and concluded “that the previously published operating forecast for the current and next fiscal year cannot be achieved. … Therefore, the supervisory board is in agreement with Lion’s executive board that an immediate realignment of the business is necessary.”
Willinger said that Lion has lowered its revenue estimate for the 2004/2005 fiscal year to €8 million-€10 million, from a previous estimate of €12 million-€13 million. The company has also raised its expected net loss to €14 million-€16 million, including restructuring expenses of €2 million-€3 million, from initial estimates of €10 million-€11 million in net losses for the year. Lion has also reduced its anticipated cash holdings for the end of the fiscal year, to €25 million from €30 million.
The upshot is a massive reorganization that will see Lion’s current headcount of 140 pared down to between 50 and 70 over the next fiscal year. The company’s headquarters in Heidelberg, Germany, will be hit hardest, with a current staff of around 70 expected to be cut to 20-25 people. The Heidelberg office will host the “core functions” of the company, which includes managing investments and cash holdings, as well as the staff assigned to the cheminformatics partnership with Bayer.
The company’s other locations, in Cambridge, UK, and Cambridge, Mass., “will be adjusted according to the planned revenues,” Willinger said, with the number of employees affected at these sites to be determined “within the next weeks.” The implementation at each site will be carried out independently, he said. “However,” he added, “the cuts in England and the USA will be much smaller than those in Heidelberg.”
Etzold described Lion’s new organizational model as “a holding structure.”
The bioinformatics business area will be concentrated in Cambridge, UK — with principal responsibility for the company’s SRS product line — while cheminformatics activities will be based in Cambridge, Mass. “The allocation of new funds from the headquarters will be given to each subsidiary only if it is profitable,” Etzold said.
Joe Donahue, who in mid-October had been promoted from chief business officer of Lion’s US operations to co-CEO along with Etzold, was removed from the executive board last week, and will supervise the US restructuring effort as head of global sales and president of Lion’s US subsidiary. Etzold was named CEO, and Willinger, who had previously led the company’s finance department, was named CFO.
Acknowledging the revolving-door nature of the company’s executive suite recently (see timeline, below), Etzold said, “You might ask why there have been so many personnel changes within the management board in such a short time frame.” After the “surprising” resignation of executive board members and co-CEOs Martin Hollenhorst and Daniel Keesman in October, “the supervisory board, with J rgen Dormann as chairman, appointed Joe Donahue and me as new executive board members. The supervisory board then stepped down on October 14, and the new supervisory board first convened on November 11. According to the new supervisory board, the new company structure and the reorientation of Lion could be implemented better with the new [executive] board members,” he said.
Another important aspect of the company’s restructuring, according to Etzold, is the “huge cost-saving potential” of its delisting from Nasdaq and its deregistration from the US Securities and Exchange Commission — a plan that the company had bandied about for several months before confirming on Nov. 15. Lion did not disclose the amount it expects to save by delisting, but the company had previously said that costs associated with complying with the Sarbanes-Oxley act would account for more than 7 percent of its total estimated costs in its next fiscal year.
“Due to the restructuring measures we have shared with you today, Lion should be profitable in the next fiscal year,” Willinger said.
Thomas Höger, an analyst with Germany’s DZ Bank, said it’s likely that the restructuring will indeed push the company toward profitability, “but at a very high price, because they will cut down their personnel to only 50 to 70 people in three locations, and I wonder whether this is really sufficient to further develop their products.” While acknowledging that Lion has succeeded in establishing “efficient cost control,” he added that “that’s not enough to secure the future of the company.”
The drastic cutback in staffing will certainly have a negative impact on the company’s ambitious product development plans [BioInform 10-18-04], but Lion spokeswoman Tracy Coffey said that the company does not intend to diminish its focus on SRS development and that “all the products that are currently available will not be made unavailable.”
Asked whether the goal of the drastic restructuring was to position the struggling company for a possible acquisition, Coffey said, “Absolutely not.” If an offer were to come in, she added, “they would have to consider it, but as far as whether there is anything on the table now — to my knowledge, no.”
“The intention with the repositioning, bottom line, is to make Lion a profitable company,” Coffey said.
A Bumpy Ride: A Breakdown of Lion’s Restructuring Moves in 2004
- Jan. 1: CEO Friedrich von Bohlen steps down. Daniel Keesman, COO, and Martin Hollenhorst, CFO, are appointed to executive board as co-CEOs.
- Feb. 2: Lion announces plans to revise its revenue recognition practice to a subscription-based accounting model, and restate its results for prior fiscal years.
- Feb. 27: Lion discontinues Lion DiscoveryCenter, focuses sales and marketing strategy on SRS integration platform.
- June 23: Lion announces plans to close LBRI facility in Cambridge, Mass., reducing total company headcount from 177 to 150. Discloses plan to delist from Nasdaq exchange.
- Aug. 24: Releases LeadNavigator, Lion’s first cheminformatics product.
- Oct. 14: Lion’s supervisory board (J rgen Dormann, Klaus Pohle, and Richard Roy) and executive board (Keesman and Hollenhorst) resign. Joseph Donahue and Thure Etzold appointed co-CEOs.
- Nov. 4: Lion appoints new supervisory board. Von Bohlen returns to the company as chairman, along with Christoph Mutter and Jan Traenckner.
- Nov. 11: Supervisory board holds first meeting.
- Nov. 15: Lion announces decision to delist from Nasdaq, effective Dec. 22.
- Nov. 17: Supervisory board removes Donahue from executive board, appoints Etzold CEO and Peter Willinger CFO. Donahue is to remain with the company as head of global sales and president of Lion’s US subsidiary.
- Nov. 18: Company revises revenue projections to €8 million-€10 million from €12 million-€13 million, announces plans to reduce staff from 142 to 50-70 over its next fiscal year.