Biotech Company Closes After Running Out of Cash

Published Saturday, December 24, 2005
Biotech Company Closes After Running Out of Cash

By ANDREW POLLACK
New York Times

In a setback for a controversial area of biotechnology, the company that
led the way in trying to produce pharmaceuticals in genetically modified
crops ran out of money and shut its doors yesterday.

The company, the Large Scale Biology Corporation, based in Vacaville,
Calif., said in a statement Thursday that all of its approximately 70
employees had been let go.

Large Scale was founded in 1987 as Biosource Genetics and was apparently
the first company to try to produce protein-based drugs and industrial
chemicals in genetically engineered plants.

Such production, it argued, would be faster and far less expensive than
using genetically engineered bacteria or animal cells, which is the
usual method of producing pharmaceutical proteins like insulin and
growth hormone.

But environmental groups and food companies have expressed opposition to
pharmaceutical-producing crops, saying that drugs might accidentally end
up in the food supply, causing health problems and forcing costly
product recalls.

Large Scale used tobacco, a nonfood crop, so its technology was somewhat
less controversial than that of companies using corn or rice. And under
the method used by the company, the genes put into the tobacco plant
could not be spread by pollen.

Still, controversy over agricultural biotechnology in general has made
it difficult for small companies in that business to raise money.

Robert L. Erwin, a founder and the chairman of Large Scale, said the
bigger problem for his company was the reluctance of drug companies to
have their products developed in crops.

Since there are no crop-produced pharmaceuticals on the market yet, he
said, drug companies do not know how easy it will be to win approval for
such drugs from the Food and Drug Administration.

"Everybody wants to be the second one out," Mr. Erwin said. "There are
very few corporate executives willing to bet on an unproven process."
Moreover, he said, pharmaceutical crop developers are wrong in assuming
that lower production costs are an important consideration for drug
companies.

With high prices for their drugs, Mr. Erwin said, "cost is not really an
issue for them."

Large Scale's demise is a blow to Owensboro, Ky., in the heart of
tobacco country, where Large Scale has a factory to extract drugs from
the tobacco.

Some civic leaders in Owensboro had been hoping that pharmaceutical
production would be a source of income for tobacco farmers and the basis
for a local biotechnology industry.

A recent study by Robert Wisner, a professor of economics at Iowa State
University, said that benefits to farmers and rural economies from
pharmaceutical crops were likely to be modest. The report was sponsored
by the Union of Concerned Scientists, which is critical of agricultural
biotechnology.

Large Scale was selling one tobacco-produced protein for use by research
laboratories and industry. It was working on producing enzymes to treat
rare diseases, a cancer treatment and vaccines.

In the company's statement, the chief executive, Kevin J. Ryan, said
that Large Scale was "taking steps to preserve our assets for the
benefit of our creditors and stockholders."

The company said it was still in talks with potential collaborators on
deals that could raise money and is also talking with potential acquirers.
The company went public at $17 a share in 2000, the year of a biotech
investing frenzy in which dozens of companies issued stock.

Even after a recent reverse split aimed at building up the price per
share by reducing the number of shares, the stock closed at 19 cents on
Friday. That will be its last day of trading on a Nasdaq market because
the company said it would not appeal a decision by Nasdaq to delist it.

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