Washington Editor

Cutbacks are coming at Neurocrine Biosciences Inc. and Valentis Inc., both of which announced layoffs late Monday.

The staff reductions stem from recent product setbacks. Neurocrine is paring about 100 employees from its payroll, its second round of cuts in the past couple of weeks, and Valentis is slashing more than half its jobs.

For San Diego-based Neurocrine, the layoffs are aimed at cutting costs as part of a restructuring program to prioritize its research and development programs and associated expenses.

The reduced headcount is expected to save about $50 million annually. CEO Gary Lyons said the business had few choices as it tries to bring the insomnia drug indiplon through the regulatory process and move forward with other high-priority programs, such as its gonadotrophin-releasing hormone (GnRH) products. Partnering early stage assets like GnRH to generate cash at this point wasn't particularly attractive, nor was selling back or leasing the company's facility.

"We've never had to do this before," Lyons told BioWorld Today. "So the decision was made to maintain an R&D organization with critical mass, but needed to trim it down to do less stuff in early discovery and focus the resources more on things that are later stage and will create more value over the next couple of years."

Recall that a 15-mg dose of modified-release indiplon received a not-approvable letter from the FDA just months ago, which led to the dissolution of Neurocrine's potential $400 million partnership with New York-based Pfizer Inc. At the same time, 5- and 10-mg doses of an immediate-release formulation received an approvable letter, but the modified-release version is expected to drive the lion's share of sales. The news sliced Neurocrine's stock by more than half, from $54.63 to $20.76, on the day it was announced. (See BioWorld Today, May 17, 2006.)

The shares fell even further when the company disclosed the probability of more trials, at least with modified-release indiplon, meaning a two-year delay to market or more. (See BioWorld Today, June 19, 2006.)

No decision has been made about future clinical work, though. Lyons said such information would be disclosed following a pair of upcoming meetings with the FDA. Both sides will meet at the end of this month to discuss immediate-release indiplon, and probably next month to discuss the modified-release formulation. Noting that the former "is closer to commercialization," Lyons said the first meeting could provide information that "would undoubtedly help" modified-release indiplon's future.

Neurocrine will manage its cash resources conservatively going forward and review new collaborative alternatives to fund the development and commercialization of its programs.

An overseas partnership for indiplon could be in the offing, Lyons said, though he added that the company wouldn't consider a global or U.S. deal "until we're closer to commercialization," despite a fair amount of interest from potential partners these days.

Neurocrine expects to end the year with about $180 million in cash, leaving it a two-year runway "to get through indiplon's resubmission and approvals," Lyons said. Its burn rate this year should total about $100 million, leading to a net loss of about $135 million.

Following this round of layoffs - the company dropped its 200-person indiplon sales force last month - there will be about 280 remaining employees. No further staff reductions are expected. (See BioWorld Today, July 31, 2006.)

On Tuesday, its shares (NASDAQ:NBIX) fell 16 cents to close at $8.61.

Valentis Laying Off 60 Percent

Amid talk of selling or merging its operations, Burlingame, Calif.-based Valentis is cutting staff and divesting some of its assets.

"This is just the first step," Chairman, President and CEO Benjamin McGraw told BioWorld Today. "It's a long path."

He declined to specify the exact number of employees affected by the layoffs, but the company reported 19 full-time employees as of March 31. Going forward, additional staff reductions are expected. Those remaining will continue to pursue "strategic alternatives for the company," he added, including the sale or merger of the entire business, the sale of certain assets or other actions. As of June 30, Valentis had between $4 million and $5 million in cash.

To that end, the company agreed to sell certain biomanufacturing rights and intellectual property to Cobra Biologics Ltd., of Keele, UK. Specific financial terms were not disclosed, but the transaction includes a one-time cash payment to Valentis. McGraw declined to characterize the company's remaining holdings.

The actions are fallout from last month's Phase IIb failure with VLTS 934 in peripheral arterial disease. That disclosure prompted the company's stock to plummet 79.1 percent, or $2.63, to 69 cents, and as a result, there are no plans to further develop the product. (See BioWorld Today, July 12, 2006.)

Further, board member Alan Mendelson resigned but will continue to serve as a counsel to Valentis because his law firm will advise on its deconstruction.

On Tuesday, its shares (NASDAQ:VLTS) dropped 1 cent to close at 39 cents.