30 are laid off by EntreMed, 25% of force

Rockville biotech defers executive compensation

Workers get severance

Company trying to get 3 cancer drugs to market

August 08, 2002|By Julie Bell | Julie Bell,SUN STAFF

EntreMed Inc. said yesterday that it has laid off about 30 employees, 25 percent of its work force, and is taking other cost-cutting steps, joining a parade of biotechnology firms making similar moves in the face of an unforgiving stock market.

The Rockville company's supply of cash has dwindled as it spends to move its experimental drugs through ever-larger stages of human testing.

The depressed market has helped push EntreMed shares that once traded above $51 down into the $2 to $3 range, making it hard to raise money by issuing more of them.

The company gained fame four years ago when its shares rocketed 330 percent in one day over speculation that its anti-cancer drugs promised a breakthrough.

"It's a difficult thing to do," Chief Executive Officer John W. Holaday said of the cutbacks, adding that they don't affect Angiostatin, Endostatin and Panzem, EntreMed's anti-cancer drugs in clinical trials.

Holaday said the measures will make the company "more efficient, more focused and more oriented toward commercial development."

The laid-off employees received severance packages and job counseling.

The moves - which include deferred compensation for top executives - are the latest evidence that the biotechnology industry might be contracting as young companies struggle to raise money.

The industry appeared to be almost recession-proof last year, but economists said this year's market downturn has changed that.

Guilford Pharmaceuticals Inc. of Baltimore laid off 60 employees last week. Drug developer Celera Genomics Group of Rockville cut 132 jobs in June.

Even smaller, private biotech companies such as gene-database developer ReceptorBase Inc. of Baltimore have said they are putting off hiring and cutting expenses as raising money becomes more difficult. Many of them have yet to put products on the market and are losing money, forcing them to dip into cash reserves to pay bills.

What the layoffs mean for the state's biotechnology industry won't be answered for months as laid-off employees find out whether they can find other biotech jobs here, said Lawrence C. Mahan, senior bioscience executive in the state's Department of Business and Economic Development.

The cuts were made as the state and Baltimore aggressively target the biotechnology industry for expansion.

Business parks for biotechnology companies are on the drawing board in East Baltimore near the Johns Hopkins University medical complex and across Martin Luther King Jr. Boulevard from the University of Maryland, Baltimore.

"My sense is the work force will be absorbed," Mahan said, noting that other companies in the state, including Advancis Pharmaceutical Corp., Avalon Pharmaceuticals and Cambrex Bio Science of Baltimore, recently announced expansion plans.

Maryland biotech companies still have ads seeking 130 employees on a job-postings Web site operated by MdBio Inc., a nonprofit promoter of the industry.

Even if layoffs spread to other biotech companies in the state, a retrenchment in the industry isn't enough by itself to push the state over an economic cliff, economists said.

The reason is that Maryland, despite a reputation as a biotechnology center, has only an estimated 16,000 of 2.8 million workers employed in biotechnology. By comparison, high-tech companies such as those involved in electronics and information technology employ about 119,0000, said Anirban Basu, director of applied economics at Towson University's RESI institute.

Holaday said the cuts at EntreMed reflect a shift in gears as the company switches from research to trying to put its drugs on the market.

"There is a time at which companies transition from ... research to commercialization," he said.

EntreMed said it would take a charge in a future quarter to pay for severance packages and other costs associated with the reorganization.

Holaday declined to disclose the amount of the charge yesterday. He said that and other details related to yesterday's cutbacks will be disclosed Wednesday when second-quarter earnings are announced.

The company did say that it expects the moves to lower operating expenses by up to 40 percent beginning in this year's fourth quarter.

Peter J. McDonald, an analyst at Gerard Klauer Mattison, said the cutbacks were warranted. McDonald downgraded his recommendation on EntreMed's stock last month to "neutral" from "buy" amid concern that the company was running low on cash.

McDonald estimated that the company was spending cash at a rate of about $56 million a year. EntreMed reported $26.3 million in cash as of March 31.

The company said yesterday that it had enough drugs on hand to supply clinical trials through next year and doesn't expect "significant" spending related to manufacturing for the rest of this year.

Shares of EntreMed rose 1 cent yesterday to close at $2.69 on the Nasdaq stock market.

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