Genex Corp. announced yesterday that its president has resigned, and it will lay off some 58 of its 146 local employes, as part of a company reorganization resulting from recent financial troubles.
The Rockville company, once considered to be among the top biotechnology companies in the country, said it has abandoned its original goal of producing industrial chemicals and now will concentrate on its contract research business.
Genex announced the resignations, effective Nov. 30, of V. M. Esposito, president and chief operating officer, and David A. Jackson, senior vice president and director.
Shellie Roth, company spokeswoman, said the two "chose to leave" and added, "management had to cut themselves."
The new staff cuts, amounting to 40 percent, come after the Rockville company shut down its Paducah, Ky., plant and laid off almost all of its 75 employes there.
Genex attributed both rounds of cuts, and the new business strategy, to G. D. Searle & Co.'s decision not to renew a contract that provided Genex with its biggest source of revenue. Genex had used the Paducah plant exclusively to manufacture the amino acid L-phenylalanine, which it supplied to Searle as a key ingredient in the low-calorie sweetener aspartame.
Searle said in June that it would let the contract expire yesterday. The contract provided Genex with 87 percent of its total revenue, and virtually all of its product sales, in the first nine months of this year.
Genex has sued Searle for more than $40 million, alleging the pharmaceutical giant misled Genex into believing it would be a long-term supplier and into investing heavily in the production plant needed to produce that supply.
Searle, which agreed in July to be acquired by Monsanto Co., never gave a reason for terminating Genex's contract. But Searle has increased both its capacity to produce amino acids and its L-phenylalanine purchases for its Japanese partner, Ajinomoto Co.
Genex has been noted for pioneering the industrial applications of biological technologies, such as fermentation, gene splicing and protein engineering. The company developed an enzyme-based drain cleaner, called Proto, and produced amino acids for use as food additives.
When the Paducah production plant became fully operational at the end of last year, it appeared that Genex had become one of the first entrepreneurial biotech companies to make the transition from a contract research firm to a manufacturer of its own products.
But without the Searle contract, Genex is back to being primarily a research firm. The company now has no current use for the production plant, in which it invested $17.5 million. Sales of Proto have been negligible because the company "never devoted a strong marketing effort" to the product, Roth said. So Genex has chosen to focus its energies on performing microbiological research for government and business clients.
Genex Chairman and Chief Executive Officer J. Leslie Glick said, "throughout our history, Genex has performed sophisticated genetic engineering research on pharmaceuticals, specialty chemicals and related products. Capitalizing on that expertise, we hope to establish our position as a leading biotechnology contract research company."
Genex said last month it had signed three new research contracts worth a total of $5 million.
The restructured company will also include a division devoted to marketing Proto and other enzyme-based cleaning products. Genex has now assigned a staff of eight solely to the task of marketing Proto, Roth said.
"At best it's a long-term gamble," said Maurice E. May, a research analyst with Ferris & Co. Inc. "But it has a chance of working."
Genex has valuable assets that will "allow it to survive" for the next few years, May said. During that time, it can produce a revenue stream through contract research while working to market Proto, he said.
The company had cash totaling $3.6 million by the end of September, and expects to gain more than $2 million by the end of the year by selling nine acres of land behind its Gaithersburg research facility. Genex could also raise cash by selling and leasing back that facility, which includes about 100,000 square feet of office space in a good location, May said.
Genex has said it is trying to lease or sell the Paducah plant, which accounted for much of the company's $28.8 million in property, plant and equipment listed in its third-quarter reports.
At the end of September, the company listed shareholders' equity of $23.9 million. But the gravity of the company's situation was underscored yesterday by its stock price, which closed at $2, down 1/8, far below its historic high of $22.50.
"Their options are very limited," May said. "The whole company is a question mark."