After failing to close new research contracts with pharmaceutical companies, GeneProt announced earlier this month that it would lay off 45 of its 95 employees and adjust its strategy to the current economic climate.
This radical step follows on the heels of an earlier round of layoffs, when GeneProt let 20 employees go as part of an effort to cut its burn rate down to $23-25 million in 2003 (see ProteoMonitor 11-4-02). The new goal is to cut costs even further, to $14 million in 2004, according to CEO Bertrand Damour, who formerly served as CFO.
So far, the company has not made a decision on selling part of its mass spectrometry equipment, he said, and will seek to negotiate with HP, its supplier and investor, to redesign its supercomputing platform in order to make it less expensive to run.
The only silver lining on the horizon: Novartis just licensed its first protein from GeneProt, resulting in a “significant amount of cash” for the company, according to Damour. The protein came out of GeneProt’s ongoing research collaboration with Novartis, a four-year contract announced in the fall of 2000. Under the deal, GeneProt agreed to analyze proteomes relating to three disease states in order to identify potential diagnostic markers or therapeutic proteins. In return, Novartis offered $41 million in fees and made a $50 million equity investment. At the end of 2001, GeneProt delivered six proteins to Novartis for further study, one of which the drug company now chose to license.
But GeneProt has not been able to pull off similar deals since then. “There was a time when big pharma was ready to put a lot of money on the table to fund early stage research,” Damour said. “Today, they are just more cautious about it.” In addition, many drug companies — including Roche, GlaxoSmithKline, and Bristol-Myers Squibb — have built their own proteomics capabilities. GeneProt’s new strategy is to focus on smaller deals, both from pharmaceutical and biotechnology companies, on the order of $2-5 million, said Damour.
New deals, however, are bound to be not only smaller, but also different in nature, according to Carl Gordon, a general partner at OrbiMed Advisors, which invested more than $1 million in GeneProt as part of a $40 million investment round in 2000: “They probably have to come in with some more focused projects,” he said. “They need to be flexible with their offerings.”
Over the last few years, GeneProt has also learned more about its technical processes. One of them, designed for the analysis of large proteins and involving 2D gels, has not fulfilled expectations, Damour said. Therefore, the company might decide to eliminate it.
Moreover, GeneProt recently upgraded its 45 Bruker esquire3000 ion traps to esquire3000plus models, giving it up to tenfold increased sensitivity that should allow it to reach comparable results with smaller sample volumes, he said. Its second study for Novartis, pushed back due to delays in the sample collection process, will start in a few months, he added.
But some investors have displayed their disappointment in the company, writing off their investments. Bruker Daltonics made an equity investment in GeneProt in 2000, but took an $8.3 million charge to its earnings last year to write the investment “down to the estimated fair market value,” according to its most recent 10-K report. Lion Bioscience, another investor, wrote off last fall a $7.5 million investment it had made in the spring. Bruker took this step after GeneProt’s former CEO resigned last spring and the company delayed indefinitely the opening of a second facility in New Jersey in the summer, according to Bruker’s CEO Frank Laukien. However, Laukien still believes in GeneProt’s future: “Their capabilities are excellent, [and] we continue to be a committed shareholder,” he said. “For them, it’s essential to maintain those great capabilities for when this winter finally goes away.”
According to Damour, GeneProt will maintain its minimum lease for the New Jersey site until at least July. Besides securing further research deals, the company will focus on speeding up its internal discovery programs and find partners to help test its biomarker and drug target candidates. Earlier this year, GeneProt announced an agreement with Serono, which will test some of its peptides, with an option to license them.
The other main goal for the year will be to keep morale up among the remaining staff, Damour said.
— JK