When companies with three years of cash restructure to reduce spending - well, that might suggest they don't like the chances of the financing window opening anytime soon.
With $132 million in cash and short-term investments at the end of the second quarter, Avigen Inc. would not be branded cash-starved. But the Alameda, Calif.-based company said it is reducing its work force by 28 percent and subscribing to a plan that is expected to stretch its cash to 2007.
"There is never a good time to do this, but we have been looking at the environment over the past few months, and for the long-term health of the company, it made sense," said John Monahan, CEO and president of Avigen. "Considering the current environment, we felt that it made sense from our perspective to trim our sails a little bit."
The restructuring calls for the letting go of 42 employees, leaving Avigen with a 110-person staff. A $500,000 restructuring charge will go on the books in the fourth quarter, but overall Avigen expects its burn rate to drop to $25 million per year, giving its $132 million more staying power. The company lost about $7.2 million in the second quarter, or 36 cents per share, and $14.1 million for the first six months of the year.
"In general terms, the bottom line is, we've gone from two to three years of cash to four to five years of cash," said Thomas Paulson, Avigen's vice president, finance, and chief financial officer. The company is scheduled to report third-quarter earnings Oct. 30, but he said the moves should save Avigen between $5 million and $7 million annually.
Avigen has made changes in its GMP manufacturing facilities that should help ease, if not necessitate, the shrinking of its work force.
"We've made some significant advancements in terms of our manufacturing process," Monahan told BioWorld Today. "It's essentially robotic [now].
"Amgen is using this [process] for its cells for [Epogen]. This allowed us not only to reduce the staff but increase reliability from one batch to the next," he added.
Ten-year-old Avigen has built itself on adeno-associated virus gene delivery technology. The company focuses mainly on hemophilia and Parkinson's disease - its hemophilia B product, Coagulin-B, is in a Phase I/II trial and Avigen expects to get "the first snapshot of the trial" by the end of the year, Monahan said.
That product hit a development snag in October 2001 when it was discovered that a patient in the trial had traces of the vector in his semen. However, the FDA cleared the trial to continue just months later in December when testing showed the trace DNA had cleared the patient's body. (See BioWorld Today, Oct. 9, 2001.)
Avigen "just completed a primate study of Parkinson's," Monahan said. The product is designed to deliver the AADC gene to patients and Avigen intends to file an investigational new drug application for it in the first half of next year. The company also has preclinical work in other areas.
Earlier this month, an adolescent patient in the trial of a gene therapy for the X-linked form of severe combined immune deficiency disease was diagnosed with a leukemia-like disease. The trial was being performed by Alain Fischer and colleagues at the H pital Necker Enfants Malade in Paris. The FDA put a hold on similar trials in the U.S., and the French trial also was suspended pending further investigation. The news cast a shadow over gene therapy, but Monahan pointed out the difference between the French trial - which used a retrovirus - and Avigen's AAV delivery method.
"Almost by default, AAV has bubbled to the surface where safety is a big issue," he said, but allowed that gene therapy, which has "been around for more than a dozen years" is "crying out for proof of principle."
"Once that happens, there will be a rush of pharmaceutical companies trying to get involved," he said.
If would be to Avigen's benefit if that proof of principle comes in the next five years as it burns through its cash reserves, just in case the financing window stays hammered shut. But Avigen is taking strides in the partnering direction already.
"Certainly [we will] be talking to pharmaceutical companies about licensing," Monahan said. "We will be looking at licensing opportunities in terms of the large pharmaceutical companies. We are already in discussions with several."
Avigen's stock (NASDAQ:AVGN) fell $1.42 Tuesday, or about 19.2 percent, to close at $5.96.