By Mary Welch

The bad news just keeps coming for Molecular Biosystems Inc. (MBI). Two weeks after its proposed merger with Palatin Technologies Inc. fell through, MBI reduced its staff by nearly 60 percent, with more cuts to come.

MBI, based in San Diego, lopped off 33 members of its workforce of 56 and eliminated its MB840 development program. The actions will reduce the company's annual expenditures by about $5 million, it said in a statement. A subsequent phase will further reduce MBI's numbers, as it will continue outsourcing its manufacturing operations to Mallinckrodt Inc., of St. Louis.

The company said it restructured in order to reduce expenses and conserve cash.

MBI develops contrast imaging agents designed to aid in the detection of common diseases and to reduce the need for invasive diagnostic procedures. Its lead product is Optison, which the company says is the first advanced-generation contrast agent. Optison is approved for ultrasound imaging of the heart wall and cavity. Pivotal trials are under way in Japan for assessment of left ventricular opacification and myocardial perfusion using FS069, which is also known as Optison.

The company said it now will focus exclusively on activities associated with Optison. In addition to the trials in Japan, it is in Phase II trials for myocardial perfusion and radiology in the U.S. and Europe.

The project that is being dropped as a cost-saving effort is MB-840, a liver-specific computed tomography contrast agent. Animal studies have demonstrated that MB-840 could have broad uses for detecting and monitoring primary and metastatic liver tumors, as well as other diseases of the hepatobiliary system.

This is the second major layoff at MBI in the last two years. Approved by the FDA in January 1998, analysts predicted Optison would produce first-year sales of $100 million, but product and royalty revenues didn't even reach $10 million.

As a result of smaller-than-predicted sales, MBI sliced its staff by about 28 percent - 40 persons - in late 1998. At the time, the cuts reduced the staff to about 100 persons. (See BioWorld Today, Nov. 12, 1998, p. 1.)

Without being specific, the company said that Optison sales grew 43 percent in the third quarter of 1999, which ended Dec. 31, over the same period in 1998, and that third quarter 1999 sales grew 18 percent over second quarter 1999 sales. However, for the nine months ending Dec. 31, the company only had $950,000 in product and royalty revenues. Total revenues were about $6 million.

MBI rebounded late last year when it agreed to be acquired by Palatin Technologies, of Princeton, N.J., in a deal worth about $27 million. (See BioWorld Today, Nov. 15, 1999, p. 1.) However, on March 14, Palatin gave notice to MBI that it changed its mind.

As of Dec. 31, the company had $15.8 million in cash.