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Need to preserve cash generates wave of layoffs in biotech industry
Tom Abate

Biotech firms nationwide are trimming payrolls, as the bear market, the uncertain economy and talk of war make executives and financiers leery of the risks involved in developing new medical technologies.

Last week, Cell Genesys joined the belt-tightening trend. The Foster City firm cut about 16 workers and transferred 10 others, a net cut of about 5 percent of its 330-person staff.

"We're slimming down and being a little more lean and mean," Chief Financial Officer Matt Pfeffer said.

Unlike other firms laying people off, Pfeffer said Cell Genesys is not in a cash crunch. Though the company is still running in the red, as is typical of biotech firms, it has about three years' worth of cash in the bank, plus stock in Abgenix, a spin-off firm in Fremont.

Nevertheless, Pfeffer said Cell Genesys decided it is prudent to preserve its capital as it prepares to begin clinical trials of its new cancer treatments. As a result, some early stage research had to be shelved.

Cell Genesys is hardly alone. BioCentury, the industry newsletter in San Carlos, said 78 publicly traded biotech firms in the United States ordered layoffs in the second half of 2002. An additional 15 public firms, including five in the Bay Area, cut positions in January (see chart).

Carl Feldbaum, president of the Biotechnology Industry organization, said the reasons for the downturn are clear. Wall Street has been in a slump for so long that biotech firms are finding it tough to obtain the financing they need to sustain themselves during their long, costly research cycles.

The economic uncertainty generated by proposed federal budget deficits and the prospect of a Mideast war also sap the confidence of executives who have to look three, five or even 10 years down the road, Feldbaum said.

As a result, biotech firms in other regions find themselves in the same funk as their Bay Area colleagues.

For instance, Millennium Pharmaceuticals, a bellwether firm near Boston, said last month it would lay off 103 people, just under 5 percent of its workforce. Celera Genomics, the Maryland firm that raced to sequence the human genome, cut about 16 percent of its workforce in the second half of 2002. Elan Pharmaceutical announced more than 900 job cuts in San Diego in August.

Mike Hunkapiller, president of Applied Biosystems in Foster City, ordered one of the Bay Area's biggest biotech job cuts in December, when he eliminated about 500 positions, about 9 percent of its workforce, which stood at 5,200 before the cuts.

ABI, which makes genome sequencing equipment, is the corporate cousin of Celera Genomics. Hunkapiller said the two firms cooperated in a large project designed to identify the genetic differences between individuals as an aid to developing tailor-made drugs.

With the completion of the project, Hunkapiller said, the company laid off contract workers hired for that task. Those workers accounted for most of the firm's layoffs in December.

Hunkapiller said that if ABI had maintained the double-digit revenue growth it had experienced in the past, it probably would have been able to find permanent jobs for the contract workers.

But when ABI reported its earnings last month, its sales growth had shrunk to 8 percent. And even though the company turned a profit and exceeded Wall Street's expectations, ABI's slowing sales have spooked investors and made expense cuts necessary.

The biotech industry's layoff spurt comes at a bad time for Gov. Gray Davis,

who recently announced plans to help boost the state's biotech industry -- in part by taking steps to train more lab technicians, who may not be needed, at least in the short term.

But Davis administration spokesman Russ Lopez said the governor still believes California should invest in biotechnology in the long term, so that it will be in a good position when the economy and the industry rebound.

"We realize this is tough times for a lot of people, but we're trying to get the ball rolling for the future," Lopez said.

Despite all the dreary news in biotech at the moment, industry observers say biotech is still driven by two fundamental trends: Aging Baby Boomers are expanding the market for medicines just as scientific advances are pointing toward new treatments.

John Challenger, chief executive of Challenger, Gray & Christmas, the Chicago firm that tracks layoffs across all industries, put it this way:

"What biotech has going for it is the faith, which has been lost in Silicon Valley, that the biotech and life sciences revolution is coming sometime in the next decade."

MORE BIOTECH LAYOFFS

BioCentury, an industry newsletter that tracks layoff trends along with other financial data, said five Bay Area biotech firms cut staff in January. They were:

-- AeroGen in Mountain View trimmed 30 percent of its workforce to lower its head count to 61.

-- Deltagen in Redwood City made a 38 percent cut to reach a 200-person workforce;

-- Geron of Menlo Park had a 44 percent reduction, creating a 52-person staff;

-- Lynx Therapeutics of Hayward made a 25 percent cut, reducing its workforce to 90 persons.

-- Onyx Pharmaceuticals of Richmond also trimmed 25 percent, to end up with 71 positions. Source: BioCentury

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