Big spenders

In the mid-1990s, investors were appalled when a handful of companies began sporting burn rates of $50 million a year. Today, those figures hardly merit a second glance, and the industry is not short of companies that can make good arguments that they need to burn $50-$100 million a year in order to get anywhere.

At the same time, CEOs are seeking to find a balance: keeping enough cash to get to the next financing window, but at the same time not paring the pipeline to the point where the company is a one-trick pony. The challenge for the outside world is to discern which companies are spending wisely and those that are bloated, wasting money on too many employees, too many facilities and programs that are going nowhere.

The 90 public downsizings over the past three quarters are evidence - if any was needed - that there's fat to be pared. Nevertheless, the company profiles in this report demonstrate just how much the paradigm has changed in the last decade. All of these companies are engaged in some aspect of industrialized drug discovery, in sharp contrast to the R&D that was practiced a decade ago, which often bet everything on a single biological insight (see BioCentury, Sept. 5, 2002).

"The two big questions today are 'how do you industrialize biology?' and 'how do you industrialize chemistry?'" said Julia Gregory, CFO at Lexicon Genetics Inc. (LEXG).

According to Gregory, companies are throwing a lot of money at biology, and not getting much out of it. "Over 40% of drug development money is spent on target identification and target validation. So people are spending a significant amount of money toward information or data that do not give them a meaningful result," she said.

For George Scangos, president and CEO of Exelixis Inc. (EXEL, South San Francisco, Calif.), an industrialized biology platform is the key to a sustainable business. "Critical mass is more important now than ever," he argued. "You have to spend lots of money and put it on the best prospects and arbitrage this over several projects. The idea of slowing spending is bad. It leads to delayed milestone events, which leads to delayed financings, which leads to delayed progress."

Thus, Scangos argued that the temptation to ratchet down discovery-stage industrial biology should be avoided, if at all possible. As an example, he said

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