Genex Corp., a small Gaithersburg-based biotechnology firm that has struggled with a variety of financial, management and legal problems over the past few years, yesterday announced a major retrenchment that includes plans to lay off more than half its 65 employees and the sale of a key business.
"Due to today's financial climate, biotechnology companies such as ours have encountered much difficulty in obtaining financing," Reed Prior, the company's president, said in a prepared statement. "This reduction helps to stretch our existing cash resources."
The cutback at Genex is the latest development in a wave of consolidations that has rolled through the fledgling biotechnology industry in recent months. Problems in raising money through venture capital, stock sales or borrowing have squeezed biotech companies that are not clear winners.
"This is a time in biotechnology development when we separate the wheat from the chaff. It looks like Genex is the chaff," said Samuel D. Isaly, an analyst at Mehta & Isaly, a New York brokerage firm specializing in biotechnology and drug firms. "There's not enough money around to keep these companies going."
While Genex's 1989 revenue rose to $5 million, the highest in several years, the company lost $6.3 million, and the losses have continued this year. At its height in the mid-1980s, the company had $26.4 million in annual revenue and more than 260 employees. Genex stock, which trades over the counter, closed yesterday at 18 3/4 cents, down from 22 cents Friday.
Genex, founded in 1977, was one of the brightest stars among the companies along the Interstate 270 biotechnology corridor through Montgomery County, and it was an early favorite of Wall Street. But the bottom fell out when the company lost a contract to produce a genetically engineered version of the artificial sweetener aspartame. Revenue plunged in 1985 to one-third of the previous year's levels, and the company began scrambling for a new strategy. It also became involved in a series of lawsuits over broken agreements and patent challenges.
Genex said yesterday that it expects to reduce its work force to 28 employees from 65 by March, beginning with the layoff of an unspecified number of workers later this week. The company said that those remaining after the cuts would be a "core group of scientists and management personnel that the company views as essential to support projects that it believes have the greatest market potential."
Among the remaining projects are single-chain antigen-binding proteins, known as SCA, which are believed to have potential uses in attacking human cancer cells; genetically engineered adhesives that may eventually be used in place of sutures in surgery; and some collaborative ventures that Genex has with major drug companies.
A company spokeswoman said Genex hopes that the cutbacks announced yesterday will allow the company to weather the current financial storm while it waits for its products to get ready for market.
Genex also has signed letters of intent to sell its bioseparations division, which makes devices and proteins used to separate liquids in laboratory work. The sale, to two separate buyers that the company did not name, is subject to the definitive agreements and other conditions. Genex did not disclose the terms of the deals.
Like many other companies in the biotechnology industry, Genex is paying the price for exaggerated expectations about the potential for the genetic engineering technology on which the industry is based. The anticipated flood of biotech products has been more like a trickle, and while there are some success stories in the industry, such as California-based Genentech Inc. and Amgen, many other, smaller companies have been left struggling.
The I-270 corridor has been a particular hotbed of biotechnology development in the past decade, with dozens of companies springing up, many of them offshoots of biotech research done at the nearby National Institutes of Health. But virtually none of those companies is profitable.
Prior, appointed president and chief executive last April in the latest management shake-up at the company, said last summer that Genex had erred by focusing on the slow-developing market for industrial applications for biotechnology and was redirecting its efforts toward the drug market.
Meanwhile, another Gaithersburg biotech firm, Life Technologies Inc., said yesterday it had agreed to sell part of its molecular diagnostics business, including human papilloma virus products used to test for cervical cancer, to Digene Diagnostics Inc. of Silver Spring. Terms were not disclosed.