West Coast Editor
In order to drop its annual cash burn to less than $30 million by 2006, Praecis Pharmaceuticals Inc. undertook a major restructuring that reduces the staff 60 percent and suspends promotion of the struggling prostate cancer drug Plenaxis, as well as development of Apan, the investigational Alzheimer's disease therapy.
"They were burning too much money on marketing and getting nowhere," said Rahul Jasuja, vice president of equity research in life sciences for MDB Capital Group in Santa Monica, Calif., who described his view of the company as "neutral" after the news.
"They've got a heavy challenge ahead and I want to see how they play it out," he told BioWorld Today.
Praecis' stock (NASDAQ:PRCS) closed Friday at 76 cents, up 5 cents.
The company plans to move its operations to a smaller facility and focus efforts on the cancer drug PPI-2458, being tested in a Phase I trial against non-Hodgkin's lymphoma. In July, Praecis said preclinical results (published in the Proceedings of the National Academy of Sciences) point to the use of the compound in rheumatoid arthritis, as well.
The firm will be working with the FDA to keep making Plenaxis available for patients already using it. The first gonadotropin-releasing hormone antagonist available as a depot formulation, Plenaxis was cleared in November 2003 by the FDA as a treatment for pain relief in certain advanced prostate cancer patients. (See BioWorld Today, Dec. 1, 2003.)
"They've had barriers they could not overcome given the restrictive label," Jasuja said. "It was a losing battle."
The FDA, in approving the drug, said Plenaxis patients should not be viable candidates for treatment with luteinizing hormone-releasing hormone agonists, and they should not seek surgical castration. Also, patients must exhibit one or more other conditions that include a risk of neurological compromise due to metastases, ureteral or bladder outlet obstruction due to local encroachment or metastatic disease, or severe bone pain from skeletal metastases persisting on narcotic analgesia.
"They really didn't have a drug that was a slam dunk," Jasuja said, adding that Plenaxis is "not a drug that a biotech company should have marketed" and a pharmaceutical company would have been more effective.
"A great management team would have anticipated that," he said.
Ending the second quarter with about $55 million in cash, Praecis said the restructuring will cut the annual burn rate in half, and existing resources should allow another two years of operations - longer if Plenaxis gets approved in the European Union (through the firm's collaboration with Berlin-based Schering AG), or if a partner comes aboard for PPI-2458.
Another possible boost would be a partner for the firm's Direct Select technology, which the company said generates "ultra-large" libraries for discovery of orally active compounds.
"I think they will be around for a while, but they may have to be more creative," Jasuja said. "I think they can pull out of it with the right management and planning."
Praecis is reducing its 182-person employee roster to about 75 permanent staffers. About 100 employees will be affected immediately, with a smaller group leaving over the upcoming months, the company said.
Praecis said cash restructuring charges will amount to about $4.1 million, including about $2.8 million associated with the reduction in force, $200,000 related to termination of contracts and $1.1 million of other associated costs, with about half of the expenditures in the second quarter of 2005 and the other half during the second half of that year.
Other charges will consist of a non-cash impairment charge of about $20 million related to the research facility in Waltham, a non-cash write-down of about $3.5 million related to Plenaxis inventory and charges of about $7.2 million related to excess commitments under Plenaxis manufacturing and supply agreements with third parties.
Overall, the move to conserve money was the right one, in Jasuja's view.
"If they had only six months of cash, they would be in the doldrums," he said.