By Mary Welch
Scios Inc. cut 80 employees ¿ 30 percent of the staff ¿ and is selling its headquarters and manufacturing operations, in a move that will save $14 million a year and better leverage profits from the anticipated launch of Natrecor (nesiritide), the company¿s drug for acute decompensated congestive heart failure (CHF).
Thirty-three of the laid-off workers occupied positions that either supported or were dedicated to the company¿s manufacturing facility and functions. The other cuts were made across the board, said chief financial officer David Gryska. No additional cuts are anticipated, and the number of employees stands at about 200.
As part of the restructuring, Scios, now headquartered in Mountain View, Calif., will consolidate its headquarters, development and research operations into less costly space in the company¿s Sunnyvale, Calif., research facility. The Mountain View campus consists of three buildings and about 100,000 square feet. The company expects to be headquartered in Sunnyvale by late summer.
¿This is long overdue,¿ said Richard Brewer, president and CEO of Scios, who joined the company last October. ¿This restructuring has been planned over the last five months as I came in, looked at our pipeline, our resources, our operations. We started getting into the details of the company, and made these changes. It¿s the logical planning process of a new vision for Scios.¿
Company To Break Even In 2000
Gryska said the company has a contract with Kaken Pharmaceutical Co., of Chiba, Japan, to manufacture FGF, a fibroblast human growth factor, that is expected to be firmed up by mid-April.
¿That will give them a two-year supply,¿ he said. ¿There is no need to keep the plant operational after that, especially since we intend to use a third-party manufacturer in Austria for Natrecor, if it is approved. The manufacturing plant costs $6 million a year to operate. It¿s just too costly.¿
Further prompting the move is that the company has a $20 million offer to purchase the campus. ¿We don¿t want to pass up that opportunity,¿ Gryska said. ¿We also have a facility in Baltimore that we got in 1993, and we¿re selling that. It¿s 64,000 square feet.¿
The company will record a one-time restructuring charge of about $7 million for the disposition of certain excess assets and severance costs.
Brewer said the restructuring ¿allows us to break even in 2000, on an operational basis [not as a result of milestones payments]. It also means that we will not have to go back to Wall Street for cash.¿
Scios expects break even in 2000, with a net income from operations estimated at $3 million. It is not releasing any estimates about Natrecor¿s potential sales, saying that its partner, Bayer AG, of Leverkusen, Germany, is responsible for the clinical trials and marketing efforts.
The company is counting heavily on FDA approval of Natrecor for CHF, a ruling on which is expected by the end of April. Last month, an FDA¿s advisory panel, the Cardiovascular and Renal Drugs Advisory Committee, voted 5 to 3 to recommend approval. Natrecor is the first intravenous therapy for acute CHF that the panel has considered in a decade. (See BioWorld Today, Feb. 1, 1999, p. 1.)
Some of the staff cuts were made possible by the transfer of certain responsibilities to Bayer with the anticipated Natrecor launch, expected in mid-1999. With the FDA approval, Bayer will pay Scios a $20 million milestone. A $15 million milestone comes upon European approval, and Bayer will pay another $5 million for approval in Japan. Both are timed for 2001. The two companies signed their $60 million deal, which included $20 million up front, last May. (See BioWorld Today, May 27, 1998, p. 1.)
Natrecor is a hormone-based therapy for CHF. First cloned by Scios researchers in 1989, Natrecor is a genetically engineered version of the human b-type natriuretic peptide (BNP), a 32-amino-acid, naturally occurring peptide hormone produced predominantly in the ventricles of the heart. The body secretes BNP, which boosts both sodium and fluid excretion while dilating blood vessels, to combat fluid overload states such as CHF.
Considered a ¿balanced¿ vasodilator, Natrecor reduces pressure in both veins leading to the heart (known as cardiac preload) and in arteries leading away from the heart (or cardiac afterload). In addition, the drug doesn¿t raise the heart rate. CHF, a potentially life-threatening disorder with no cure, is a chronic pathophysiological condition that results from an inefficiently pumping heart.
¿By cutting expenses, and running a more efficient operation, when Natrecor is approved, we will be able to drop the profits to the bottom line,¿ Gryska said.
Scios¿s stock (NASDAQ: SCIO) closed Monday at $9.312, up $0.062. n