Tuesday, April 26, 2005

Strapped for cash, Large Scale Biology borrows

Article Last Updated: Monday, Apr 18, 2005 - 10:18:54 pm PDT

Strapped for cash, Large Scale Biology borrows

By Matthew Bunk

FAIRFIELD - The most venerable biotech firm in Vacaville wiggled out of an immediate financial crisis by borrowing money from its chief executive.And it's not the first time the company borrowed money from Kevin Ryan. Ryan, the top executive at Large Scale Biology, loaned the firm $3 million last week to overcome a cash shortage which has threatened its viability for more than a year. That was on top of his $600,000 loan to Large Scale last month. If the loans are not repaid, Ryan would be able to claim ownership of "certain intellectual property," according to a report to investors.

But it's not clear if cash will ease the long-term challenges facing Large Scale, which has posted quarterly losses of more than $4 million for the past year after downsizing maneuvers that include cutting its workforce by about half and stopping all early stage product development. The company's financial statements have for some time reflected doubt about its ability to continue operating. An annual report issued Friday reiterated those concerns. Large Scale's cash balance as of Dec. 31 was $1.1 million, while losses for the year stood at a crippling $14.6 million.

The firm has since borrowed money from several sources to pay operating expenses."The current rate of cash usage raises substantial doubt about the (c)ompany's ability to continue as a going concern, absent any new sources of significant cash flows," the report stated.Large Scale Biology has operated in Vacaville since 1987, focusing on development and manufacturing of biotech products. It uses tobacco leaves to grow proteins used for medical purposes.The company was the first notch in Vacaville's growing life science belt, which now consists of biotech giants Genentech Inc. and Alza Corp.

But money problems stymied Large Scale's growth since its big contracts began winding down a few years ago. Cost-cutting slowed the outflow of cash, but it needs to sign new product deals to sustain its operating costs, according to the annual financial statement. Loans from research partners and its executives will only solve the short-term problems."We expect the negative operating cash flows to continue throughout 2005 at a similar rate as 2004," the statement indicates. "However, this rate of cash usage is not sustainable for a long-term period." Our ability to develop our products and sustain operations will require subsequent funding through collaborations, or debt or equity financing in the short term and product sales in the long term."

In another development announced along with the release of the annual report, Large Scale's independent financial auditing firm ended its contract with the biotech company. Large Scale noted that there were no disagreements with its auditor, Deloitte & Touche, LLP.

Reach Matthew Bunk at 425-4646 Ext. 267 or mbunk@dailyrepublic.net.

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