BioTransplant Inc. is hanging its hide on the bankruptcy coat rack, filing a voluntary petition along with its wholly owned subsidiary, Eligix Inc., for Chapter 11 reorganization. The filings were made with the U.S. Bankruptcy Court in Boston.

Medford, Mass.-based BioTransplant saw its stock (NASDAQ:BTRN) dive 16 cents on the news Friday, or 57.5 percent, to close at 12 cents. At today's open of business, the company will have only two employees, down from about 62 last summer, BioTransplant CEO Donald Hawthorne told BioWorld Today. While he did not update the firm's financial status due to legal restrictions, BioTransplant reported about $8.6 million in cash, cash equivalents and investments for the period ended Sept. 30.

"We did not file for bankruptcy because we are giving up or that we're going out of business," Hawthorne said during a conference call. "Rather, as a purely practical matter, we believe that given our current situation, a bankruptcy filing is simply a stronger and better platform from which to execute our long-term strategy of maximizing and capturing the value of our key assets and programs."

Specifically, BioTransplant is looking to avoid the termination of its exclusive license to BTI-322 and MEDI-507, a pair of antibodies key to its business strategy. A month ago, the Catholic University of Louvain, from which the company secured the licenses, said it was seeking to terminate the agreement.

"They raised this dispute," Hawthorne said. "We consider it to be nothing more than a unilateral attempt to rewrite a 10-year-old contract."

Essentially, the bankruptcy protection buys the company time to further negotiate settlement terms. Hawthorne said that under the laws of bankruptcy, the university could not terminate the agreement.

The license, which dates back to 1993, provides BioTransplant exclusive rights to develop and commercialize the BTI-322 rodent monoclonal antibody and its MEDI-507 human analogue. Following the Belgian university's initial call to end the agreement, both parties agreed to work together for 30 days in an attempt to resolve the issue. Though that period has lapsed, the company said it still plans to settle the dispute, and believes the protection of the bankruptcy court could aid in that process.

BioTransplant sublicensed BTI-322 and MEDI-507 to Gaithersburg, Md.-based MedImmune Inc., which has advanced the latter into Phase II psoriasis trials. MedImmune is funding development, provides milestone payments to BioTransplant based on certain research and development objectives, and will be responsible for commercialization. BioTransplant would receive royalties on commercial sales. (See BioWorld Today, Sept. 18, 2001, and Oct. 13, 1995.)

The compound also is part of a xenotransplantation program being conducted by Immerge Biotherapeutics AG, BioTransplant's joint venture with Basel, Switzerland-based Novartis AG. Begun in 2001, the partnership's goal is to develop miniature swine that can be used as a safe source of organs and tissues for human transplantation. (See BioWorld Today, May 9, 2001.)

Boston-based Immerge last week reported a bit of success. Collaborative partner Infigen Inc., of DeForest, Wis., birthed three genetically modified miniature swine. (See related story this issue.)

Hawthorne said the company could have opted to countersue the university, but a weak cash position prevented such action.

Instead, he said bankruptcy became BioTransplant's most viable option to protect rights to MEDI-507. In addition to its role in the MedImmune program, Hawthorne called the compound a potential antibody component to BioTransplant's AlloMune System. The system, being developed for use in therapy-refractory malignancies such as lymphoma, renal cell cancer and melanoma, as well as for kidney transplantation, stem from technology and intellectual property licensed from Massachusetts General Hospital in Boston.

"We moved this dispute into the jurisdiction of the bankruptcy court of Massachusetts, a court experienced in deciding disputes of this nature," Hawthorne said during the call. "And we ensure that this issue gets resolved within a reasonable amount of time."

Well before the licensing agreement quarrel flared, the company was taking measures to reduce its spending. It reduced staff from 82 to 62 in July, job cuts designed to reduce its cash burn rate by 25 percent and provide sufficient funding to last until late in the third quarter of this year. (See BioWorld Today, July 31, 2002.)

During last year's third quarter, BioTransplant recorded a $5.2 million net loss, part of a nine-month net loss of $35.9 million. Its fourth-quarter financial results have yet to be released.

BioTransplant said it continues to pursue partnering and licensing agreements for its assets, while preserving its rights to any potential future royalty income from MEDI-507. The company said it continues partnering and licensing discussions for its unlicensed programs - the Eligix HDM Cell Separation System, acquired as part of a $55 million deal in December 2000, and the AlloMune System. Hawthorne said the reorganization proceedings allow it flexibility to provide partners with such assets unencumbered by litigation.

But even he remains unsure as to the final outcome.

"There's no question that this was a difficult step to take, and we cannot assure that we will succeed in our ultimate objective," Hawthorne added during the call. "But we believe that this action is necessary given our current legal situation with the university combined with our cash position."

Despite Hawthorne's guarded optimism, BioTransplant's skeptics include shareholders who have followed its business from an investment banking perspective. Matthew Kaplan, an analyst with New York-based Punk, Ziegel and Co., who owns shares of BioTransplant, said in a note that his investment firm is discontinuing coverage of the company.

"Based on BioTransplant's weak balance sheet, the ongoing dispute with the Catholic University of Louvain, and an unsure timeline for the continued development of MEDI-507, we believe there continues to be substantial uncertainty associated with the ability of the company to accomplish its goal of maximizing the value of its key assets," he wrote.