National Editor

Deltagen Inc. joined the leagues of companies trimming down to reduce burn rates and realigned its efforts, losing 130 employees - about 30 percent of the staff - and closing its San Diego site. Operations will be consolidated at the headquarters in Redwood City, Calif., and in Salt Lake City.

In February, Deltagen paid $23.5 million in stock for Bristol-Myers Squibb Pharma Research Labs LLC, for it to function as a wholly owned subsidiary in San Diego focused on small-molecule drug discovery. (See BioWorld Today, Feb. 12, 2002.)

"That facility is closing, and we're retaining chemical screening activities that are going to Salt Lake City," Nina Ferrari, senior director of investor relations, told BioWorld Today. "Some of [the work done there] we are not going to be able to move forward with. It's too cost intensive for us to invest in chemistry for our small-molecule targets."

The company's stock (NASDAQ:DGEN) fell 28 cents Wednesday, or 19.1 percent, closing at $1.19.

Henceforth, Deltagen said it will focus on tools, services and targets for small-molecule drug discovery, complementing its DeltaBase product - a searchable gene function database - and will keep up internal drug discovery and development in the area of secreted proteins through collaborations such as the one with Hyseq Inc., of Sunnyvale, Calif.

In that deal, signed last October, Deltagen is working on about 200 secreted proteins provided by Hyseq, in return for about $10 million in payments over two years, plus $10 million in equity proceeds from the sale of about 1.5 million shares to George Rathmann, Hyseq's chairman.

Rich Hawkins, chief financial officer of Deltagen, said the company "will be continuing to market our [DeltaBase] subscription database product, as well as DeltaOne, which provides access to individual data relative to those targets."

The latter, he told BioWorld Today, is "a program we are just launching," noting that Millennium Pharmaceuticals Inc., of Cambridge, Mass., is among the buyers.

"We basically sell access to knockout mice and/or some of the [specific] phenotypic data we have around those," he said, rather than charging $5 million per year for 250 potential targets under DeltaBase.

"For a lot of companies, they may have already identified the targets they're going to be working on, and they want to use the mouse to verify or substantiate their beliefs about the target or highlight potential issues," he said.

Ferrari noted that Deltagen itself has identified four targets - three in immune disorders and one in metabolism - that show promise.

Work force cuts and other moves are expected to reduce operating expenses from the current level of between $85 million and $90 million per year to between $55 million and $60 million in 2003. The benefit of implementing the plan likely will be realized beginning in the first quarter of 2003, the company said, and Deltagen will record a restructuring charge in the fourth quarter, including costs related to severance, outplacement services, benefits and write-down of assets.

Deltagen also updated its financial guidance for 2002, anticipating revenues and cash collection for the year from business already contracted to be about $17 million and $25 million, respectively. Of the amounts, the company had achieved approximately $13 million of the former and $19.5 million of the latter through the third quarter, which the company ended with about $49 million in cash and debt of $17 million.

The drop in cash from $76.6 million as of June 30 was attributed to operating cash burn and outlays for construction of the Redwood City lab facilities, expected to finish by the fourth quarter, the company said.

Hawkins said "the issue for database companies is the shelf life of the information. In our case, we're putting new information in on a continuous basis related to potential drug targets, 500 per year. It continues to be new and fresh."