Genex Corp., once considered a bright light of the emerging biotechnology industry, said yesterday it is phasing out production of its major product and will lay off about 25 percent of its work force.
The Rockville company is winding down production of the amino acid L-phenylalanine, which accounted for 88 percent of its revenue in the first half of this year. Almost all of Genex's 75 employes at its Paducah, Ky., production plant will be laid off in stages between mid-September and Oct. 31.
Genex used the manufacturing plant exclusively to produce the amino acid, a key ingredient in the low-calorie sweetener aspartame, which is marketed by G. D. Searle & Co. under the trade name NutraSweet. Genex said the decision to shut down the plant is a result of Searle's decision not to renew Genex's supply contract after it expires Oct. 31.
The announcement reflects the gravity of the situation facing a company that had been listed as one of the five most promising biotech companies and was noted for pioneering industrial applications of genetic engineering techniques.
"They bet the company on L-phenylalanine production, and they lost," said Maurice E. May, a research analyst with Ferris & Co. Inc. "Now they are assessing what they have left."
Genex is not on the verge of bankruptcy, analysts said. Its resources include about $4.5 million in cash, valuable real estate in Gaithersburg and Rockville and a widely respected protein engineering program.
However, its stock price closed yesterday at 1 3/4, down 1/4, far below its historic high of $22.50 and below a book value estimated to be about $2.21 on March 31.
The current crisis demonstrates the mistakes Genex has made, which have removed the firm from the top tier of biotech companies, May said. The company's primary blunder was relying so heavily on one product and one customer, he said.
But he added that Genex has enough cash and assets to survive for about a year and that the firm could use that time to generate revenue through research contracts, real estate sales and new products.
"Things are very grim," May said. "But they can limp along for the foreseeable future."
Genex President V. M. Esposito said the company is seeking a buyer or lessee for the 280,000-square-foot Paducah plant and is exploring the possibility of using the plant for contract production.
The employes to be laid off include all categories of workers, including managers, biochemical engineers and factory workers, a company spokeswoman said. Some security personnel will be retained. No Washington area employes will be affected.
Genex had invested heavily in the plant in order to keep pace with booming demand for L-phenylalanine, which took off as major food and beverage companies switched from saccharin to NutraSweet. Purchased in 1983, the Paducah plant became fully operational only at the end of last year and was encumbered with a $5 million mortgage at year end.
Genex saw both its revenue and losses grow last year as the success of the aspartame ingredient was more than offset by the costs of starting up the Paducah plant. Revenue tripled to $34.8 million compared with the prior year, but losses increased 37 percent to $7.4 million. L-phenylalanine accounted for $20.2 million of Genex's product sales of $20.6 million and 58 percent of total revenue.
In December, the company eliminated 54 research and administrative positions because of its "declining cash flow." In April, Genex executives said they were hoping to raise cash by selling a minority interest to a corporate partner. A spokeswoman said yesterday that Genex has not reached any new agreements with potential investors.
In the first six months of this year, the amino acid accounted for 88 percent of Genex's total sales of $9.7 million. Contract research revenue accounted for the balance.
Searle and Genex would not say why Searle pulled the plug on Genex, but both Searle and its Japanese partner, Ajinomoto Co., have increased their amino acid production capacity.
"I used to think of Genex as one of the world-class biotech companies," May said, referring to Genentech Inc., Cetus Corp. and Biogen N.V. But Genex has made a series of mistakes "which indicate that they are not of that class," he said.
Besides relying excessively on one product and one customer, Genex never developed the marketing ability to push its other products, an enzyme-based drain cleaner and the food ingredient aspartic acid, May said.
The other top biotech companies are working to develop several products and have developed marketing and licensing arrangements with large pharmaceutical and chemical corporations.
Genex also erred by ignoring its contract research business, an important source of steady revenue to other biotech companies, May said. Genex spokeswoman Shellie Roth said yesterday that the company has started working to revive that business but that is has no new contracts to announce.
While most of its problems appear to be managerial, Genex's technological position is difficult to determine, May said. The company has been so secretive about its L-phenylalanine production process that it is unclear whether its method is the most cost-competitive, he said. "I'm not convinced they have cutting-edge technology."