By Mary Welch

CytoTherapeutics Inc. cut its staff by 60 and, in a reorganizational effort, will focus now on its proprietary stem cell technology platform through its wholly owned subsidiary, StemCells Inc.

In addition, the Lincoln, R.I., company expects to reduce substantially its research and manufacturing facility in Lincoln. The company had 75 employees at its headquarters and another 15 at StemCells, which is located in Sunnyvale, Calif. No cuts were made in California.

"It's obviously very disappointing when you have to cut back, but our lead program failed," said Richard Rose, president and chief executive officer. "So we are now shifting our focus into stem cell research, and that will be an exciting venture for us."

The staff cutbacks come from those involved with the company's defunct encapsulated cell technology program with London-based AstraZeneca Group plc (the deal initially was formed with Astra AB, of Sodertalje, Sweden). Last month AstraZeneca pulled the plug on the potential $41 million collaboration because of disappointing Phase IIb results. At the time, CytoTherapeutics said it would look over its options, noting it still had about $13.4 million in cash, which could carry it into the first quarter of 2000 even without any bottom-line adjustments such as layoffs, the company said. (See BioWorld Today, June 25, 1999, p. 1.)

Astra not only funded clinical trials but also provided more than $7 million annually to fund the encapsulated cell pain control implant program.

"This is the other shoe [falling]. It's a tough blow," said Elizabeth Razee, vice president of corporate communications at CytoTherapeutics. "But the downsizing is the only rationale you can have when your only source of revenues goes under. You can't keep bringing resources to the plate when your product doesn't show efficacy. What are we to do? And, we don't need a huge manufacturing plant because clearly we don't have any reason for it now."

The implant contained live bovine adrenal cells that secreted naturally occurring analgesics such as catecholamines and opioid peptides, which disrupted the transmission of pain signals to the brain.

CytoTherapeutics acquired StemCells for $7.9 million worth of stock in September 1997. StemCells is developing novel cell therapies for the treatment of diseases both inside and outside the central nervous system. Currently, the company is focused on the development of its neural stem cell technology and the discovery of the stem cells for the liver and pancreas.

"We have a significant patent position in neuro stem cells, and that is the nearest thing we have in our pipeline," Razee said. "We are going to fight another day."

Rose said CytoTherapeutics is the only publicly traded company in stem cell research. "We are certainly an opportunity for anyone wanting to invest in stem cell research," he said.

CytoTherapeutics' stock (NASDAQ:CTII) closed unchanged Friday at 84.38 cents per share.