|Biotech firm seeks protection from creditors (16/1/2006)|
This article does not repeat the interesting comments previously made by Robert Erwin, a founder and the chairman of Large Scale, who said the main problem for this leading pharmaceutical crop company was the reluctance of drug companies to have their products developed in crops.
He was quoted as saying, "There are very few corporate executives willing to bet on an unproven process."
He also said, GM pharma crop developers were wrong in assuming that lower production costs - supposedly the main selling point of pharma crops - are an important consideration for drug companies.
With high prices for their drugs, Erwin said, "cost is not really an issue for them."
Nasdaq delisted the stock Dec. 27  because of low price.
The company lost $25.3 million in 2003 and $17.4 million in 2004. In the nine months ended Sept. 30 the company lost $11.6 million, or 37 cents per share, on revenue of $2.2 million.
The firm owes $2.9 million to Kentucky Technology Inc., a for-profit economic development company owned by the University of Kentucky.
Large Scale files Ch. 11 after closing
The company ceased operations in December after failing to raise enough money from a bridge loan. The company has assets of $9.76 million and debts of $7.84 million.
"We believe the asset value is sufficiently high that we'll be able to pay off all the creditors and have additional value left over for shareholders," said Robert Erwin, chairman of the company's board of directors.
The company's restructuring plan could include selling its Predictive Diagnostics Inc. subsidiary, greenhouse and manufacturing operations in Kentucky, patents and product rights, Erwin said. He went to Europe last week to meet with companies interested in buying some assets.
"The Chapter 11 filing gives us the opportunity to get the maximum value of the assets rather than having any one creditor take control of the process," Erwin said.
The company's largest secured creditor is chief executive officer Kevin Ryan, owed $4 million, who could not be reached. The firm owes $2.9 million to Kentucky Technology Inc., a for-profit economic development company owned by the University of Kentucky. Investment firm Agility Capital LLC and company executives are the only other secured creditors.
Founded in 1987, Large Scale Biology developed methods of making drug proteins by altering the genes of tobacco plants. From the start, it blended strategies of developing products and offering biotechnology services.
In the late 1990s and early 2000s, biotech investors became enthusiastic about companies such as Large Scale Biology that could identify the functions of genes and proteins.
Large Scale Biology performed those services for other companies. It generated millions of dollars analyzing crop-plant genes for Dow Chemical Co., and had several small customers seeking information about proteins for health products and disease treatment.
But the service side of the business generated a lot less cash than expected. Large Scale Biology performed the services and handed over lots of data to those companies, then had to wait for the other firms to develop products that would earn royalties for LSB. It took too long.
Still, the genomics and proteomics business propelled investor excitement, and Large Scale Biology raised $90 million with an initial public stock offering in 2000. The money funded the company's research for years, but eventually it fell out of favor with investors. It fell into a cycle of having too little money to attract commercial partners, which made investors more squeamish.
In August the company received from Brittany Capital Co., a Dallas company, a three-year, $15 million line of credit secured by stock. The company never activated that line of credit.
On Oct. 24 the company received $500,000 of a $1.5 million bridge loan agreement with Agility Capital LLC. The remaining money was contingent on Agility's inspection of the Owensboro, Ky., manufacturing facility and the sale of some assets. The company filed for bankruptcy before collecting the rest of that money.
Nasdaq delisted the stock Dec. 27 because of low price. Shares (Pink Sheets: LSBC) closed at 12 cents Wednesday.
Employees and creditors
The company lost $25.3 million in 2003 and $17.4 million in 2004. Revenue dropped from $3.6 million in 2003 to $1.8 million in 2004. In the nine months ended Sept. 30 the company lost $11.6 million, or 37 cents per share, on revenue of $2.2 million.
The company had $85,000 in cash and marketable securities at the end of September.
The employee who asked not to have his name published said some executives, at the firm's request, had gone without compensation for their work the last four months. The bankruptcy filing lists 11 employees among the 20 largest creditors holding unsecured claims against the company's assets.
Large Scale Biology employed 69 people as of Nov. 3, down from 78 on March 31 and 144 in 2001. The lease on the company's 45,000-square-foot administrative and research complex in Vacaville expires Feb. 28, 2009.