With its plans for a US launch of its first drug delayed by the FDA, Oxford Glycosciences last week embarked on a reorganization and cost-cutting initiative designed to shore up the company’s short-term finances. In the process, the company’s proteomics division, which OGS had for the past few years held up as the crown jewel of its pharmaceutical R&D efforts, will now operate as a separate business unit in support of the company’s drug development in oncology and inherited glycosphingolipid storage disorders, the company said.
OGS insists its efforts in proteomics provide a solid foundation for the growth of its product pipeline — and indeed that may be — but in the short term the move represents a retrenchment in the company’s emphasis on proteomics. As a result of the reorganization, the proteomics group is losing part of its budget as well as taking the brunt of 40 layoffs at the company’s Oxford, UK, headquarters. In addition, OGS’s rejigging of its corporate structure serves as an example of the challenges facing proteo-centric businesses as they try to balance the need for near-term revenues with the desire to generate the intellectual property vital for the company’s long-term stability.
“There’s always a lot of pressure to generate revenues [through pharma partnerships],” said Leigh Anderson, the former CSO for Large Scale Biology. “But a company’s long-term future is dependent on coming up with high- value discoveries.”
But overall, the move can be seen as primarily shareholder driven. Given the current difficulties facing biotechnology companies trying to access the capital markets, it may be no surprise that OGS took action to reduce its expenses and shore up its reputation in the eyes of shareholders. The company’s share price on the NASDAQ has dropped precipitously from its high of just over $20 in January 2001 to under $3 as of the market’s close last Tuesday, and the delay in the US launch of Zavesca, OGS’s drug for Gaucher disease, has further eroded the company’s prospects for near-term profitability.
The effect on the company’s proteomics activities is significant. In addition to taking on new responsibilities as a separate business unit, with its own profit and loss statements, the proteomics division has cut its annual spending by 40 percent, or £4.7 million ($7.36 million) for 2003 through employee reductions and other measures. The layoffs in the proteomics division primarily involve software engineers and technical support staff whose jobs have been made obsolete through automation, said Andrew Lyall, the OGS manager now responsible for proteomics.
Lyall formerly led the bioinformatics and IT department supporting OGS’s proteomics activities. Raj Parekh, formerly OGS’s chief scientific officer, will now take charge of the company’s drug development efforts in oncology. In other management changes, Denis Mulhall has taken over as the company’s chief financial officer, replacing Stephen Parker, who has moved on to “ other opportunities,” Lyall told ProteoMonitor.
Although the reorganization ostensibly places the proteomics arm of OGS in a secondary role to the company’s drug development efforts, Lyall said there are advantages to operating as a distinct unit. “It’s a coming of age, really,” he said. “It just means we can accurately report how much we have spent, and how much revenue we’ve got. In the past, because we’ve been rolled in together with sales and marketing and drug discovery, it’s been very difficult for investors to work out the benefits of proteomics from a financial point of view.”
Anderson agreed that the move appears to be an attempt at financial survival as opposed to a significant shift in scientific strategy. “The dilemma is always the same,” he said. “Should you be applying your technology to other people’s problems to get revenue from, for example, big pharma, or should you be applying your technology to your own problems to generate products?
“The key thing that everybody is interested in right now is survival,” he added. “If you don’t have at least two or three years worth of money in the bank, then your survival is open to question.”
OGS said last week in its earnings report for the first half of the year that it expects its proteomics business to reach profitability “in 2003,” and earn 2002 revenues of £14 million, up from £13.4 million in 2001. As of June 30, the company had cash reserves of £153.4 million ($239.6 million). For the first half of 2002, OGS had an operating loss before interest and taxation of £24.6 million.
The cutbacks could aid in the drive to profitability, along with other recent news from the company. Last week OGS said Bayer had accepted several protein targets discovered by OGS during the course of their two-and-a-half-year research collaboration. OGS said the targets passed Bayer’s “stringent validation requirements” for association with asthma and chronic obstructive pulmonary disease, and that it will now pass them on to Bayer for further drug development. OGS has rights to milestone payments and royalties on sales from any future products developed by Bayer from the research.
When asked about the nature of the validation process, Lyall said the process involved discovering specific targets or biomarkers in one population, and then confirming their presence in a separate population. In addition, “a pharmaceutical company will perform very rigorous validation, which includes freedom to operate and chemical tractability,” he said.
OGS has also signed a Cooperative Research and Development Agreement (CRADA) with the FDA to identify serum protein biomarkers that could be used in various species to predict the toxicities of drugs. The CRADA calls for FDA researchers to develop specific models of drug-induced injury to the myocardium, vasculature, and liver, produce samples, and for OGS to use its proteomics platform to identify proteins with potential as biomarkers for toxic response.
Lyall said making the proteomics division profitable in 2003 will require signing additional partnerships similar to those with Bayer and the FDA.