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Lion Closes LBRI Facility, Mulls Nasdaq Deregistration as Revenues Slide More

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Lion Bioscience said last week that it will shutter its LBRI facility in Cambridge, Mass., at the end of the month when its research partnership with Bayer concludes. In addition, the company is thinking about withdrawing from the Nasdaq stock index and eventually deregistering from the US Securities and Exchange Commission.

“The Nasdaq listing has not met the management’s expectations thus far,” said Martin Hollenhorst, Lion’s CFO, during a conference call to discuss the company’s fiscal year 2003/2004 results. In addition, he said, “the company’s US listing has not noticeably increased its recognition or prestige with customers,” and carries “immense costs” associated with accounting, reporting, and Sarbanes-Oxley compliance — around 6 percent of the company’s total estimated costs, Hollenhorst said. Lion is currently “looking at the possibility” of deregistering, he said, but did not provide further details on a timeline for this evaluation or specific criteria that will affect the company’s decision.

Hollenhorst said that Lion’s trading volume in the US market has been “unsatisfactory,” at about 3-5 percent of its trading volume on the German stock exchange. “The stock listing in the US has yielded no stimulus of its own,” he said. The company will continue to trade on the German stock exchange.

Lion’s share price has been hovering around the $2.00 mark since May. On June 4, it closed at an all-time low of $1.78. At its peak on Sept. 6, 2000 — about a month after its IPO — Lion was trading at $106.50 a share.

The company’s dilemma is typical of the bioinformatics sector’s disappointing history in the public markets. Following a boom of IPOs in 2000 — Lion, Compugen, InforMax, Genomica, and Rosetta Inpharmatics all went public that year —only Lion and Compugen have avoided acquisition, and both firms are now trading in the single digits.

Two Bayer Deals End

June 30 marks the end of a five-year $125 million research collabor-ation that Lion struck with Bayer in 1999. The terms of the deal called for Lion to establish a subsidiary, Lion Bioscience Research Inc., dedicated to delivering targets for Bayer’s pipeline. Hollenhorst said that Lion has delivered 1,200 targets to the company, and that both parties consider the partnership to be a success. Nevertheless, Bayer will not renew that agreement and “the LBRI side of the deal definitely comes to an end in June.”

Lion said in February [BioInform 02-09-04] that the contract would likely not be renewed. Last week, the company detailed its plans to close the facility, reducing its total headcount from 177 to 150. The company’s US operations will consist of sales and marketing only, and all R&D will be concentrated at its Cambridge, UK, and Heidelberg, Germany, sites.

Lion is still working on an additional project with Bayer to develop software for pharmacophore analysis. This project is also slated to expire this summer, but Hollenhorst said that Lion is in discussions with Bayer about a possible renewal. If the project is extended, he noted, “It will not be large. It would be a normal professional services job.”

Revenues Drop 33 Percent

Lion reiterated the preliminary revenues for the 2003/2004 fiscal year that it provided in May, as well as its outlook for the remainder of the current fiscal year [BioInform 05-10-04]. The company reported a 33 percent year-over-year drop in revenues for the year ended March 31, 2004, to €19.7 million ($24.0 million) from €29.4 million ($35.8 million) in the prior fiscal year. The company attributed the decline to “persistent low investments” by customers, and the delay of a “key milestone” in its pharmacophore project with Bayer to the first quarter of the current fiscal year.

Lion disclosed that Millennium Pharmaceuticals was one of two “prominent” licensees for SRS during the final fiscal quarter. The deal was significant for Lion, according to Daniel Keesman, Lion’s CBO, because Millennium previously used a competing product — BioRS from BioMax.

Sales of Lion’s flagship SRS data integration platform made up 51 percent of the company’s license revenues for the year, followed by licenses associated with LBRI, which made up 16 percent of revenues, and sales of Scout/Target Engine, which made up 14 percent of revenues. Lion DiscoveryCenter — the enterprise data integration product the company launched last year — contributed only 4 percent of Lion’s revenues for the fiscal year.

Lion’s drastic restructuring over the past year helped the company narrow its losses sharply. The company posted a net loss of €20.8 million for the 2003/2004 fiscal year, compared with €152.8 million in the prior year. In addition, the company’s burn rate for the quarter hit an all-time low, Hollenhorst said, at €5 million. For the year, the company’s burn rate was €29.8 million, down from €51.2 million in 2002/2003.

As of March 31, 2004, Lion had €29.3 million in cash and cash equivalents and €13.8 million in marketable securities.

Hollenhorst said the company expects revenues of €12-13 million for the 2004/2005 fiscal year. The tide will begin to shift in the last fiscal quarter of the current year, however, when Lion expects to be cash-flow-positive for the quarter. Lion is anticipating a net loss for the current fiscal year of €10-11 million, and a cash position of €30 million as of March 31, 2005.

In the following year, the company predicts “double-digit” growth fueled by the launch of new products — in particular, the Lead Engine cheminformatics platform that it expects to release this fall — and a reawakening of sorts among biotech and pharmaceutical companies with regard to early discovery and informatics technology. After several years of concentrating on the clinical phase of drug development, “companies will need to invest more heavily in basic biology and chemistry” to refill their drug pipelines, Hollenhorst said. In addition, he added, Lion anticipates a rise in IT outsourcing in the biopharma research market. This belief is based on “what has happened in other industries, where IT activities were outsourced, or standard software products used, in order to concentrate more fully on core competencies,” Hollenhorst said.

— BT

 

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