Until December, Bethesda Research Laboratories Inc. had been one of the wonders of the biotechnology field, its sales multiplying like the busy cells in its genetic experiments.
Then the recession caught up the company and abruptly it began dying. "It could all have been lost," said Stephen Turner, the founder and president of BRL.
The company that Turner and two other employes started in 1976 had sold more than $10 million in products for genetic research last year, but at year's end it was losing money and becoming dependent on greater and greater infusions of outside financing--a demand that Turner says he couldn't keep up with.
Last month came the amputation. BRL laid off 180 of 460 employes--one-third of its work force--and canceled most of its long-term research projects. It was a devastating blow to a staff that had been expanding rapidly and riding on the highest hopes. "There were a lot of unhappy people," Turner said.
BRL, which operates out of about a dozen locations in Gaithersburg and Rockville, stopped construction on a $7 million headquarters building in Frederick Research Park and has put its 22-acre site up for sale.
These cutbacks and $7.5 million in new financing obtained recently have put BRL back on its feet, Turner says. By eliminating speculative research projects whose payoffs were three or more years in the future and concentrating instead on research materials that have an immediate market, BRL is no longer in jeopardy, he adds.
"We did $1.1 million in sales in February, and that clearly represents growth from January," he said. By June, the company should be profitable again.
But it has had a close call that should be a warning for the 200 other firms in the biotechnology field, he says. "The door is closed for exciting new companies that don't have a fundamental operating history," Turner predicts.
The market for the research materials BRL sells has cooled off because the rapid increase in research labs has slowed down, Turner said. At the same time, the sources of investment funds for new biotechnology ventures are drying up. The publicly owned companies traded on stock exchanges performed below the averages for all stocks last year, ruling out that path for most companies looking for capital, Turner said.
Large corporations are not as interested in taking speculative stakes in biotechnology firms now, when high interest rates make conventional investments so rewarding.
That leaves the vast majority of the biotechnology companies depen- dent on the specialized venture capital groups that lend money in return for shares of private stock.
In the first blush of enthusiasm for the biotechnology business, companies like BRL could get such equity financing from venture groups that were prepared to wait years for research breakthroughs. Because of the recession, however, this source of equity financing is also disappearing, at least for the foreseeable future, he said.
Turner found himself in a losing race to raise enough money to close the gap between BRL's expanding research costs and its sales revenue. Most of the money BRL raised last year wound up financing operating losses. "It was painfully evident to me at Christmas time that the longer I stayed in the equity markets, the more potentially dangerous it was becoming.
"I was chasing something that was receding from me," Turner said.
With that realization came the conclusion that BRL had tried to grow too fast, he says. "We were trying too many different ways of becoming a large company. We were committed in too many areas."
The biotechnology field was set for a fall because of reckless expansion, says Thomas J. Perkins, chairman of Genentech and a general partner of Kleiner, Perkins, Caulfield & Byers, a venture capital firm. "This crazy, mindless stampede to get into the technology ignored business and patent realities," he told the Wall Street Journal recently.
The cutbacks eliminated much of BRL's research work in genetic engineering, pharmaceuticals and animal products.
BRL maintained its medical diagnostics research, and some genetic and immunology work that is expected to lead to products soon. And it is also continuing to develop materials that will separate the protein products that result from cloning.
"BRL will not be the company that makes interferon," Turner said. "But we will make the separation materials that permit companies to purify interferon."
And BRL will manufacture its newly designed machine that analyzes genetic materials, the first of its kind in the industry, says Turner. The company hopes to sell 300 of them this year at $11,000 each.
In obtaining $7.5 million in new private financing, BRL added two members to its board of directors--William H. Janeway of the investment banking firm F. Eberstadt & Co., representing European investors, and Frederick R. Adler, an investor in high technology firms--who will provide aid in BRL's financial management, said Turner.
"Over $20 million has been put into BRL over the last three years," Turner said. These investors do not have majority of BRL's board, but they have a significant voice in the company's future. "I report to the board. If I do a bad job I expect to ge fired."
Turner said the new investors did not insist on the sharp reductions in research and personnel, but he was convinced it was necessary to make those steps to demonstrate the company's credibility. "People were impressed the company was able to exercise that kind of discipline and move that fast," he said. Before making the reductions, he consulted BRL's outside scientific advisers, who evaluated the company's research programs, he said. "You can't just fire every third person." The reductions had to follow a plan, or else the remaining employes could not have pulled together. CAPTION: Picture, BRL President Stephen Turner says cutbacks in long-range projects and $7.5 million in financing have put the firm back on its feet. By Fred Sweets -- The Washington Post