Synbiotics Reports $1.2-Million Loss for Third Quarter

Synbiotics, which in January reported the loss of a licensing agreement with a major pharmaceutical company, on Friday reported a $1.2-million net loss for the third quarter ended Dec. 31. Synbiotics reported a $41,000 net profit during the previous third quarter. Revenue for the quarter fell to $887,000 from $1.6 million.

Synbiotics reported a $1.9-million net loss for the nine-month period, contrasted with a $328,000 net profit during the corresponding period the year before. Revenue for the nine-month period rose by 10% to $5.5 million, up from $5 million.

“This has been a difficult quarter for the company,” acknowledged Synbiotics President and Chief Executive Edward T. Maggio.

The loss followed the Jan. 30 announcement that SmithKline Diagnostics had canceled a $1.7-million contract with Synbiotics to develop and license diagnostic products for the physician’s office. The contract was expected to bolster Synbiotics’ revenue by as much as $30 million during a five-year period.

Sales Costs Up

The quarterly loss was driven largely by sales costs that rose by 121%, to $237,000. Product sales to cover those costs failed to materialize after SmithKline Diagnostics canceled the contract, Synbiotics Vice President Martin Nash said Friday.

Synbiotics’ loss also was attributed to research-and-development costs that rose 178%, to $545,000, for the fourth quarter and 134%, to $1.2 million, for the nine months ended Dec. 31.

Those increased costs were driven by two veterinary therapeutic products that are entering clinical trials that, if successful, will lead to product sales in 1991. “It’s sort of a good news/bad news situation,” Nash said. “We wouldn’t be incurring the costs if we weren’t close to a product launch.”

‘Long, Grinding Process’

The quarterly loss was “wider than I was looking for,” according to Kenneth Bohringer, a New York-based analyst with Prudential Bache. “But, in this industry, product development is known to be a long, grinding process.”

“The key investment consideration for me is whether Synbiotics can successfully launch the two veterinary products in 1991,” Bohringer said. “The other consideration is if they have sufficient capital to get by in the interim.”

Synbiotics’ cash flow has “not been as good as the typical investor might like because the company has been sustaining losses,” Bohringer said. “However, they have considerable capital to work with, and they have been using it up rather gradually.”

The Rancho Bernardo-based company had $17.1 million in cash Dec. 31, down from $21.7 million during the fiscal year ended March 31, 1988.

Made Money

“This is a tough business,” Nash acknowledged. “And several biotech companies that lack strong balance sheets are for sale right now,” said Nash, who maintained that Synbiotics “has a strong balance sheet--and we were profitable during the past two years.”

Losing the SmithKline Diagnostics contract was “a disappointment, not a disaster,” Bohringer said. “It obviously was not a piece of good news for the company, but it doesn’t at all affect Synbiotics’ two (veterinary products) that evidently will be introduced to the market in 1991.”

Synbiotics expects to have those two therapeutic products--one for a major feline disorder, the other for canine heart worm--by 1991 at the latest, Nash said. “Hopefully, we’ll still have the lead on the rest of the world,” Nash said.

In addition to those monoclonal antibody-based veterinary products, Synbiotics plans to eventually enter the market for human diagnostic and therapeutic products. Nash on Friday maintained that the development of human therapeutic products was not hurt by the SmithKline Diagnostics cancellation.

‘Quite Disappointed’

“I’m not denying that we were quite disappointed by the cancellation,” Nash said. But the monoclonal antibody technology is still at the core of the company’s technology, he said, “and that wasn’t affected by the cancellation.”

The SmithKline contract represented a “quite nice way to absorb overhead costs,” Nash said. Synbiotics’ licensing agreement evidently was lost in the shuffle during extensive management changes at SmithKline, Nash said.

“It was a very frustrating but very amicable parting,” Nash said. “The president of the (SmithKline Diagnostics) unit and the group president above him were both fired and replaced by two new guys. One of them acknowledged that he’d never even heard of our company.”