In an effort to ensure cash flow without outside help, Genaissance Pharmaceuticals Inc. implemented a number of internal changes simultaneous to reporting second-quarter and half-year financial results for the period ended June 30.

The firm that analyzes genes to predict drug response said it reduced its work force by 20 percent to 110 employees, with the majority of cutbacks coming from its DNA sequencing facility and related informatics support. President Kevin Rakin, who just was named CEO as well, said the decrease would allow Genaissance to break even in three years without a need to raise additional capital.

"The good news is that it seems pretty clear people need to invest in pharmacogenomics, but the bad news, if you will, is that the deal terms are definitely under pressure," he told BioWorld Today. "That means that while [potential partners] want to invest in the R&D of the future, including something like pharmacogenomics, there's a limit to their budget. That calls for more creative discussions, such as shifting some of the expense to the balance sheet from an income statement." Also, he said, pharmaceutical companies are doing more projects in stages rather than as one major initiative, and they are more prone to look at a structure that stresses success fees instead of nearer-term payments.

New Haven, Conn.-based Genaissance is looking a bit longer term as it said it plans to reach financial break-even in 2005. But to get cash-flow positive, it said it must achieve minimum annual revenue increases of 25 percent to 30 percent. Year-to-date revenue points in that direction, as six-month revenues totaled $3.8 million compared to $2.1 million for last year's six-month period, an 81 percent increase.

But Rakin admits to a challenging trend in pricing research tools.

"The link between what the research tool can produce, whether it's a database or informatics or some other kind of discovery tool," he said, "vs. trying to measure that in terms of its contribution to a product that can be out on the market in the short term is what we have to constantly establish in our industry.

"And all of that is happening at the same time that the financing window for biotechnology companies has closed tight. If you're not getting the money from pharmaceutical companies and you're not getting it from the general markets, then you have to live off the money you've been able to accumulate in the last few years."

Through June 30, Genaissance reported cash, cash equivalents and marketable securities totaling $42.2 million. Its three-month net loss, inclusive of a nonrecurring charge, equaled $13.5 million, or 59 cents per share, compared to last year's loss of $13.2 million, or 58 cents per share. For the six months, the company incurred a net loss, including the nonrecurring charge, of $22.5 million compared to $24.4 million in the year-ago period.

The nonrecurring charge is $6 million related to the write-down of certain fixed assets. The work force reduction will result in a $200,000 charge to be recorded in the third quarter.

"We've seen a few companies in our industry go through restructurings or taking some steps backward, and I believe we'll see more of that," Rakin said. "This is exactly where the science of the future meets the business realities of the present."

Genaissance added that it plans to seek partners for all internal product development programs.

"This calls for a real balance between what exactly partners want now or over the next 18 months," Rakin said. "And what in terms of our own internal investment can be suspended, delayed, or shouldn't be invested in."

Additionally, previous CEO Gualberto Ruano was named vice chairman and chief scientific officer. In early July, Rakin was appointed the firm's chief operating officer in addition to his duties as president. As CEO, he is now responsible for all business and operating functions.

Genaissance's stock (NASDAQ:GNSC) closed down 1 cent Tuesday at $1.10.