Debt Is A Way Of Life For Central Mass. Biotech Cos.
How do life sciences firms know if they are spending wisely?
The life sciences companies of Central Massachusetts can inject mice with substances that cause certain genes or cell types to glow, or engineer goat's milk that can stop blood clots.
It's heady stuff, and the industry gets a lot of attention. But while one of the state's several life sciences or biotechnology companies could one day cure cancer or Alzheimer's, one thing most of them are currently unable to do is turn a profit.
But that's not unique to Central Massachusetts. In New England, public biotech companies reported $1.4 billion net losses, according to a 2007 report on the industry from Ernst & Young.
Loss Liabilities
Biotech firms' bottom lines are bleeding, and the risk factors about which companies like Caliper Life Sciences in Hopkinton and GTC Biotherapeutics in Framingham warn their investors go far beyond the natural disasters, terrorist attacks and heated competition that profitable companies worry about.
For life sciences and biotechnology companies, a loss that's a few hundred-thousand, or a few million dollars less than it was a year before is a sign the company is on target to meet its goals and moving in the right direction. All those millions of dollars they've spent on starting the company, research and development could pay off yet.
But how much loss is too much? When does a company cross the fine line between spending what's necessary and spending its way out of favor with investors and out of business?
Mark Roskey, vice president for reagents and applied biology at Caliper, said life sciences companies must keep in mind that no matter how cutting edge the technology, or how pioneering the research, the result is supposed to be that the company has a product to sell. And prospective customers should be able to afford it.
Recouping start-up or research and development investment is difficult for any life sciences company, Roskey said. He said the idea of offering a range of products from entry-level to high-line may not dawn on companies focused too narrowly on research and development. That is where the money is going, after all, and if a company's research is focused on a single piece of technology or treatment, it makes it that much more difficult, and that much more unlikely, that the company will turn its losses into gains.
Bright Ideas
Caliper can attach a light source derived from fireflies to any gene in mice it engineers to be genetically as close to humans as possible. This allows researchers to observe and track specific cells, whether they're cancer cells or insulin, within the mice.
It's far out and it's expensive to develop, but it's actually cheaper for Caliper's main customers, pharmaceutical companies. Those companies no longer have to kill and dissect mice to see the results of their work. So, through development and acquisitions, Caliper has built up an entire line of products and services around its "mouse models."
The far-out science is part of a service business, Roskey said.
Since August 2006, when Caliper spent $62 million to buy California-based Xenogen Corp., which developed the equipment that allows Caliper and its clients to see the light source within the mouse models, the company has been able to offer pharmaceutical companies not only the ability to monitor selected genes over time, but the equipment that does the monitoring and even the scientists to do the research and write the reports.
And if a customer just wants some genetically engineered mouse models, Caliper sells a variety of those as well.
Caliper also sells a range of the Xenogen equipment and the software to run it for between $150,000 and $350,000 to pharmaceutical companies that want to do the research themselves.
What Caliper tells the pharmaceutical companies is that their mouse models and imaging equipment "helps R&D be more profitable and go to trials faster," Roskey said.
Caliper itself is not profitable today, but Roskey said the company has turned a corner as a result of its diversified offerings. The company reported a net loss of $2.4 million for the third quarter. Its second quarter net loss was $6.3 million. Its first quarter net loss was $9.6 million. In the third quarter of 2006, the company's net loss was $13.5 million.
Similarly, net earnings at Framingham's GTC Biotherapeutics have not reached balance-sheet black, but have been improving steadily in recent quarters.
Thomas E. Newberry, a company spokesman, said life sciences companies cannot afford not to have their clinical and commercial acts together.
"Investors get skittish all the time," Newberry said, but there isn't really an alternative to public trading to raise the money GTC and other life sciences companies consume. "We're high-growth, development- stage companies," Newberry said. "There's no way to get from Point A to Point B without issuing stock."
Point B for Newberry is where companies like Genzyme and Biogen Idec are. "And you get there by spending lots of money, and nobody hits the milestones cleanly every time."
But missing a milestone here or there shouldn't worry life sciences companies too much, Newberry said, as long as they're asking themselves, and answering honestly, "Are you making progress? Are you sticking to the plan? Are you developing new products?"
If a company is "spending money just to keep the lights on and the doors open," that company is doing it wrong, regardless of what it's developing.
Such was the case with Worcester's Biovest International Inc., which by early November had stopped producing its development-stage cancer vaccine, laid off most of its Worcester employees and had borrowed $500,000 from a hedge fund that went, in part, toward back pay for employees.
That's not good for a company with one experimental product in its pipeline and a running deficit of more than $90 million.
Biovest is currently analyzing results of a study on its key product, the experimental cancer vaccine BiovaxID. The results may determine whether the company survives or goes bust. Biovest CEO Steven R. Arikian did not return phone calls seeking comment for this story.
Newberry said five years ago, GTC, like Biovest, had no government approvals for the proteins it develops in genetically modified goats. The company says those proteins can stop blood clots from forming in patients during high-risk surgeries.
Today, GTC's ATryn anti-clot protein has approval for use in Europe, and the company has as U.S. patent for the production of any therapeutic protein in the milk of any genetically modified mammal. "We're still spending money, but we're spending it on the right things," Newberry said.
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