By Brady Huggett

IntraBiotics Pharmaceuticals Inc. is cutting its staff by more than 70 percent, consolidating its facilities and terminating certain collaborations to save around $7 million to $8 million per quarter and give the company the financial legs to last through completion of its Phase III trial of iseganan in radiotherapy patients.

About 90 positions in research and administration will be terminated, leaving IntraBiotics with 37 employees focused on one thing: the product now called iseganan. The restructuring is simply using available funds in the best way, said Kenneth Kelley, chairman and CEO of IntraBiotics.

¿It will help us because we will be able to cut expenses basically in half,¿ he said. ¿We believe we have a product in iseganan. We are ensuring ourselves and our shareholders that we have the human and capital resources to finish the development of iseganan.¿

IntraBiotics, of Mountain View, Calif., had about $66.9 million in cash reserves as of March 31.

Iseganan, then called Protegrin IB-367 Rinse, failed about a month ago in a Phase III trial for the prevention of oral mucositis in patients undergoing high-dose chemotherapy, but failed with a twist ¿ a dosing error by a third-party vendor spoiled data on 102 patients in the 323-patient study. Although the trial missed its primary endpoint of reducing ulceration, it hit on its secondary endpoint of reducing pain, Kelley said. At the time, Kelley said that without the error, the trial likely would have hit both primary and secondary endpoints. (See BioWorld Today, April 27, 2001.)

While the work force reduction at IntraBiotics will have the largest impact, IntraBiotics is tightening its belt in other ways. Kelley said IntraBiotics would end ¿a handful¿ of collaborations and will confine its operations to one building in Mountain View, either terminating leases on its other three or subleasing them. Also, it plans to delay development of two Phase II trials until things loosen up financially.

Beyond that, IntraBiotics this week said it tweaked its collaborative agreement with Biosearch Italia SpA, of Gerenzano, Italy, concerning the development and commercialization of the late-stage product ramoplanin for topical and oral use. Enrollment for a Phase III trial for ramoplanin oral powder for the prevention of vancomycin-resistant enterococci bloodstream infections has been slow and results of the trial are expected to be delayed by a year or more from the original end-of-2001 expectation. The new collaboration terms stipulate IntraBiotics will be reimbursed for ongoing clinical trial expenses during a three-month transition period ¿ June 1 through Aug. 31. The period may be mutually extended, but after it expires, Biosearch will assume responsibility for development of ramoplanin at its own expense and will retain worldwide rights. IntraBiotics will get royalties on future sales in North America, if launched.

The new agreement also specifies IntraBiotics retains its license to topical uses of ramoplanin unless certain development milestones are not met. Also, it allows IntraBiotics to regain North American rights to the oral powder program under certain conditions and by paying certain fees to Biosearch.

Meanwhile, iseganan progresses toward its final destination: a conclusive Phase III trial. IntraBiotics has the ongoing radiotherapy trial, the tarnished chemotherapy trial with the vendor error, and will soon start the repeat chemotherapy trial.

¿We are giving ourselves insurance in that we are doing another chemotherapy trial and will use all three to file,¿ Kelley said. ¿The first [chemotherapy] trial, although people viewed it as a failure,¿ was actually strong data on secondary endpoints. We¿ll use that for supplementary filing.

¿There are lessons we learned from the chemotherapy 1 trial that we will apply to the chemotherapy 2 trial as far as better design and better compliance,¿ he added.

Things are getting thin at the top, too. IntraBiotics will cut corporate officers from eight to three. Two are leaving immediately, Kelley said, and three will stay on temporarily to help make the transformation to the slimmer, scaled-back company. The rest of the cuts will follow a similar pattern: about 60 employees are already gone and the remaining 30 will, for a while, be available to help smooth the streamlining.

¿You don¿t need a large management group to do what we do,¿ Kelley said, ¿which is to be a company very focused on iseganan.¿

Kelley said released employees have been treated ¿fairly and appropriately across the board.¿ That means a minimum of two months severance pay, benefits and outplacement services. And, if the company gets a cash infusion of some sort, that could mean the reopening of jobs.

¿We¿ll absolutely need to add back if we have any additional capital of any form,¿ Kelley said. ¿We could apply it to lengthen our funding period or activate another product, which may mean hiring.¿

While IntraBiotics has cut the company to its iseganan bones, putting its resources completely toward one product, Kelley noted this certainly isn¿t a first in the industry.

¿There are several examples of companies that have undergone restructuring and regrown. It¿s what the media calls the Phoenix Strategy. IDEC, MedImmune, Amylin, Scios ¿ these are all companies that had a lead product fail and had to restructure and refocus and then redo a trial. In a sense, we are learning from these companies¿ history in implementing our own Phoenix Strategy.¿

IntraBiotics¿ stock (NASDAQ:IBPI) fell 51 cents Thursday, or about 19 percent, to close at $2.18.

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