Centocor Inc. on Tuesday announced the resignation of JamesWavle Jr., its president and chief executive officer, and said itwas prepared to give up its independence to raise new capital.
The moves came as a result of the FDA's April 15 decision thatCentoxin (HA-1A), the company's monoclonal antibody to treatgram-negative sepsis, is not approvable based on thecompany's clinical trial data.
The stock (NASDAQ:CNTO) fell $1.38 to $13 on Tuesday.
The Malvern, Pa., company said its board of directors hascreated an executive committee to be chaired by Michael Wall,a founder and a director who was chairman from 1979 to 1986.
David Holveck was promoted to president and chief operatingofficer from executive vice president and president of thediagnostics division. He joined the company in 1983.
Hubert Schoemaker, also a founder, retains his positions aschairman and CEO.
"During the past few years we've pursued a very independentpath, doing everything ourselves -- a high-risk, high-rewardstrategy," Schoemaker told BioWorld. "With the delay in HA-1Aapproval, which is a very disappointing and a very soberingexperience, I now have to sail the company out of thesetroubled waters. Michael Wall has agreed to work very closelywith me, and we'll do whatever it takes to make the companysurvive. Anyone who thinks we're presiding over a funeralprocession doesn't know us."
The most fundamental shift will be re-examination ofCentocor's independent path, Schoemaker said. However, hesaid emphatically, the company is not for sale.
Among the company's options are corporate partnerships todevelop its products -- Centocor has retained worldwide rightsto all of its therapeutics -- and contract manufacturing to gainadditional revenues.
The key objectives include raising additional capital andreducing the company's $50 million-per-quarter burn rate.Centocor has raised more than $650 million since its inceptionand has $230 million in cash.
But with about 58 million fully diluted shares, another trip tothe capital markets is unlikely. "Going to the financial marketswould be extremely difficult in light of the performance of thestock in the last few months," Schoemaker said.
Holveck's first task will be to look at sales and marketing to seeif he can increase product sales and overall revenues,Schoemaker said.
Holveck's second objective will be to look for ways to reducethe burn rate by cutting expenses or forming collaborations.Centocor has a 200-person U.S. sales force, which was hired inanticipation of the U.S. launch of Centoxin. Holveck is to reportback to the board in the next month with his recommendations.
Analysts interviewed by BioWorld agreed that changes werenecessary. "The way the company was structured, it needed$250 million to $275 million in sales to be profitable," saidJacqueline Siegel of Hambrecht & Quist. "If I had my wishescome true, they'd diminish spending in a way that doesn'tjeopardize the development of new drugs."
"To make Centocor a viable company, they've got to change thewhole business plan," said Franklin Berger of Labe &Associates. The easiest changes would be to cut administrativeand marketing costs and focus research, he said.
Tuesday's announcement may not diminish speculation aboutdismantling of the company.
"The company is putting itself into play as a takeover candidateby saying it's looking for capital," said Merrill Lynch analystStuart Weisbrod. However, he said, Centocor is unlikely tocommand a big premium. Neither Genetics Institute Inc. norCetus Corp. received substantial premiums in their respectivedeals with American Home Products Corp. and Chiron Corp.
"I think the company is destined for disintegration," said DavidWebber, an analyst at Alex. Brown & Sons. "I expect it to besold in pieces. I doubt that it will be attractive to anyone as awhole."
According to Schoemaker, Centocor is negotiating with the FDAover the form a second Centoxin trial might take. "We'll dowhatever they ask us to do so they can get the informationnecessary to approve the product," said Schoemaker. "If theywant a Phase III trial, we will do it."
However, Webber said Wavle's resignation is a clear sign thatCentocor sees no quick fix for Centoxin. "Management made anextraordinary error in only doing a single clinical trial, and thebitter fruit of that error has matured," he said. "I doubt thatJim Wavle was the only person responsible for that error."
-- Karen Bernstein BioWorld Staff
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