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GeneProt Postpones NJ Expansion; LSBC Slashes Its Spending and Staff

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GeneProt and Large Scale Biology both announced cutbacks last week, as big pharma’s apparent reluctance to invest heavily in the companies’ technology began taking its toll. GeneProt, which had initially planned to establish a second industrial-scale proteomics facility in North Brunswick, NJ, by this fall, has now indefinitely postponed its expansion plans. LSBC, in an effort to reduce its cash burn rate, has laid off 31 percent of its workforce and reduced overall company spending by 30 percent. Perhaps most notably for its proteomics effort, Norman and Leigh Anderson, LSBC’s chief scientist and chief scientific officer, respectively, have both resigned from the company, although they will continue to serve as consultants.

While GeneProt did not issue a public announcement describing its reasons for delaying the expansion — neither were company officials available for comment — the news arrived via its mass spectrometry and separations equipment suppliers. Both Bruker Daltonics and Waters said last week that previously announced GeneProt orders would now be either redirected to the company’s Geneva facility or not taken at all. In Waters’ case, this amounted to the loss of $20 million in revenue that was earmarked for liquid chromatography equipment and mass spectrometers for the proposed New Jersey facility [see sidebar page 4].

Like LSB, GeneProt also faces the loss of senior management. While Larry Grill, a co-founder of LSBC, will replace Leigh Anderson as CSO, GeneProt has not yet named a replacement for former CEO Cédric Loiret-Bernal, who left the company in late April. In the interim, GeneProt named Bertrand Damour, its chief financial officer, and Marc Funk, its general counsel, to a management committee reporting directly to the company’s board of directors.

In LSBC’s case, the company said in a conference call with investors last week that the spending cuts were made partly in response to the steady erosion in the value of the company’s shares, and are meant to trim $10 million from its annual cash burn of $32 million. In addition to laying off 58 of the company’s 185 employees across the company’s three sites in Vacaville, Calif., Owensboro, Ky., and Germantown, Md., 28 of LSBC’s most highly paid employees are taking a 10 percent pay cut, and the three most highly paid of the company’s executives — John Fowler, president; Bob Erwin, CEO; and David McGee, COO — will take a 20 percent cut in their cash compensation.

Fowler blamed an “irrational” investor climate as the cause of the company’s ill fortune. “Our prospects couldn’t be better, but still [biotech] company valuations are hitting new lows.” Fowler added, “I won’t sleep well until we have at least three years’ cash.”

But that may not tell the whole story. Both GeneProt and LSBC have worked hard in the last year to build up a portfolio of pharma and biotech customers for their proteomics and gene expression services, with little to show for their efforts. Last June, LSBC hired two executives to help vice president for business development Guy della-Cioppa drum up deals following the expiration of a lucrative deal with Dow Chemical and Dow Agrosciences that provided the company with about $5 million per quarter in revenue. Although Fowler said the company is now involved in “serious dialogues with more companies than ever before,” that effort to replace the Dow partnership has yet to bear fruit.

As for GeneProt, convincing other big pharmas to follow the lead of Novartis has proven similarly difficult. In an interview in February, then-CEO Loiret-Bernal expressed confidence that he would soon be overseeing the company’s expansion to New Jersey, while cautioning at the same time that he preferred not to take the plunge without an additional pharma customer. “We don’t want to be running [in New Jersey] without a big customer,” he said at the time.

As a result of its cutbacks, LSBC will now use its proteomics effort as a discovery tool to support its research in stem cell growth factors, and as a means for developing diagnostic products, including biochips, Fowler said. The replacement of Anderson with Grill as CSO did not indicate a strategic shift away from proteomics, he added, but rather a need to reorganize the company’s management.

Although the father and son Anderson team will continue to serve as consultants to LSBC, it was unclear in what capacity. The two scientists were primarily responsible for building LSBC’s automated 2D gel-based protein discovery platform, its Human Protein Index, a catalog of proteins from major tissues, and developing technology for an antibody array platform.

Fowler said LSBC is still committed to bringing protein biochips to market, but that the time frame for “getting them to a revenue point” had occurred much more slowly than expected. “It’s just going to take more time than we thought,” he said.

— JSM

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