CLSA in the San Francisco Business Times: Why are deep-pocketed biotechs cutting hundreds of jobs?
By Ron Leuty | San Francisco Business Times
Jan 30, 2019
At a time when Bay Area biotech companies are swimming in cash and building rich portfolios of potential drugs, they are wielding a weapon usually reserved for bad times: job cuts.
From startups to large and maturing biotechs, a handful of Bay Area companies have disclosed more than 200 layoffs in the first month of 2019. That follows some 400 job cuts in the final months of last year.
The good news? A number of growing life sciences companies are hunting for local talent after finding it tough to recruit people to the Bay Area because of its high cost of living.
Aduro Biotech Inc. said Wednesday that it will cut 55 jobs. Earlier this month, Five Prime Therapeutics Inc. clipped 42 jobs in South San Francisco, and Theravance Biopharma Inc. said it is nixing 49 early research, manufacturing and sales jobs.
The reasons for the cuts runs the gamut. Biotech pioneer Genentech Inc. of South San Francisco cut 83 jobs across various operations starting in December as it and parent company Roche face pressure from cheaper biosimilar drugs. Direct-to-consumer microbiome test maker uBiome Inc. of San Francisco sliced 55 jobs as it moves into drug development. And CardioDx Inc. of Redwood City shut down, shedding 110 jobs, after losing Medicare coverage of its heart disease test.
“It’s not a matter of money,” Aduro Chairman, President and CEO Stephen Isaacs said.
Indeed, Berkeley-based Aduro (NASDAQ: ADRO) ended 2018 with $278 million in cash, equivalents and marketable securities that will take it into 2022, Isaacs said. That is a long timeline in the capital-intensive biotech industry, where it can take $1 billion and a dozen years to move a drug from lab bench to patient bedside.
An at-the-market, or ATM, offering by Aduro could bring in another $80 million, and Aduro’s drug-development collaborations will hit milestones will bring millions of dollars more from partners over the next several years.
“You never want to be in a cash jam and be on your knees,” Isaacs said.
Aduro’s stock climbed 10 percent, or 25 cents, Wednesday to $2.72 per share.
Five Prime (NASDAQ: FPRX), which estimated end-of-year cash, equivalents and securities of $270 million, has seen its stock rise more than 10 percent since it announced its job cuts Jan. 16. Meanwhile Theravance (NASDAQ: TBPH) of South San Francisco, which has about $500 million in reserve, has seen its stock dip 9 percent.
Still, the job-cut tally is jarring for an industry at the intersection of a strong cash position, breakthrough science and regulatory approvals. Venture capital flowed into biopharma last year, reaching $19 billion through the third quarter and eclipsing previous full-year figures.
Before a fourth-quarter IPO slowdown, Bay Area drug developers filed at least 15 initial public offerings last year. Companies, however, have concerns about government regulation of drug prices and the recent federal government shutdown’s effect on the economy and Food and Drug Administration approvals.
“The development of new treatments and technologies by the life sciences sector is inherently high risk and often fraught with failure and disappointment,” said Mike Guerra, president and CEO of the California Life Sciences Association, said in a statement. “While we’re seeing some news of layoffs and reorganizations occurring, the fundamentals of the Bay Area’s biotechnology ecosystem remain strong.”
Jonathan Norris, a managing director at Silicon Valley Bank, said the market is fine for now.
“We should see a bunch of pretty strong IPOs in the next few weeks,” Norris said, adding that newly public companies still can raise money in the secondary market.
Read the full article at the San Francisco Business Times.