Investors Flock to Cancer-Cure Research Firm in Turnaround
Four months ago, the prognosis for tiny Techniclone Corp. was bleak. The developer of experimental cancer treatments had run out of cash and laid off half the staff. The stock price languished at 27 cents a share. Even the company’s clinical trials--its only hope for survival--were about to fold for lack of funds.
What a difference Wall Street can make.
Thanks largely to investors’ latest obsession with the biotechnology sector, Techniclone shares have zoomed nearly 4,000% in three months, magically wiping away the company’s cash crunch.
The stock price surge is an increasingly common story in today’s fast-moving market, but Techniclone’s abrupt reversal of fortune--from the verge of bankruptcy to a Wall Street high-flier--is a dramatic example of just how influential such market mood swings can be for a struggling company.
At Christmas, Techniclone was worth less than $25 million. Today the market value of the Tustin-based firm is nearly $1 billion.
“We’re amazed,” said John Bonfiglio, a onetime organic chemist who now is Techniclone’s interim president.
When he agreed to take the helm after a management shake-out in November, Bonfiglio didn’t know whether he would be remembered as the hero who saved the company or the guy who sold off the microscopes and light bulbs.
“It could have gone either way,” he said.
Morale is rebounding as employees watch the value of their stock options soar. A threatened removal of its stock from the Nasdaq market has evaporated. Vendors and research partners began accepting Techniclone’s fast-rising shares as payment, enabling the company to pay off nearly all its bills.
The stock closed Friday at $10.94 a share, down $1.
Most important, thanks largely to the stock surge, Techniclone’s bank accounts are flush again, allowing all-important clinical trials to continue without a bump, Bonfiglio said.
That’s mostly because the higher stock price has enabled Techniclone to borrow $2 million from its $20-million credit line--a loan that was previously off-limits because the company’s stock price had fallen so low. Now Techniclone is negotiating to increase its credit limit to $50 million.
Another unexpected windfall came as employees and former employees--mostly departed executives--rushed to exercise stock options. The company, as holder of the shares, pocketed $1.8 million from those who exercised their options because they had to pay the company the low option price before they could receive the stock and sell it at a profit, Bonfiglio said.
Usually, such a cash infusion would have little impact on a company, but it came at a crucial time for Techniclone, which didn’t have enough money for rent and salaries late last fall.
“There is some serendipity to it,” said Bonfiglio, a 45-year-old Long Island native. “Who knew?”
Techniclone has had a history of ups and downs.
Since it was founded in 1981, the company has focused on commercializing a promising cancer treatment based upon antibodies that attach themselves to cancer cells. The idea is to use these proteins to carry tumor-killing agents or special dyes that would enable doctors to track the spread of the disease.
The company’s drugs include Oncolym, used to treat non-Hodgkin’s B-cell lymphoma, and Cotara, which targets brain cancer. Human testing is underway for both products, but neither is expected to generate sales for two to three years. Meanwhile, the company has lost $65 million since 1997.
Part of that was squandered by previous managers, who once dreamed of turning Techniclone into a major pharmaceutical company. They outfitted the headquarters with luxuries, like a 40-foot, cherry-wood boardroom table, and built a $3.6-million manufacturing facility, which costs $400,000 a month to run even though Techniclone has no products yet.
“Overhead costs were killing the company,” said Edward Legere, a Techniclone director and the company’s largest shareholder. “They were great ideas, but ahead of their time. You need to keep things lean and mean.”
In 1997, a disastrous financing deal raised $12 million, but it also doubled the number of common shares outstanding. The company’s stock sank from the dilution.
By last year, Techniclone had burned through most of its cash, and the future hinged upon closing a licensing deal with Schering AG, the German drug giant. The deal, which could have raised $8 million in licensing fees for Techniclone, collapsed in the fall.
“There was no Plan B,” Legere said.
Legere and an outside investor, Eric Swartz, pledged new loans, but only if the company made changes, including reconfiguring the board. The new directors tapped Bonfiglio, then head of Techniclone’s business development and technology, to run the show.
After spending 11 years researching acne and psoriasis treatments at Allergan Inc., Bonfiglio was getting bored in the lab.
“One day they gave everyone a Myers-Briggs [personality] test, and I realized I was the only extrovert in a room of other scientists who were all introverts,” he said. He started taking business classes at night.
As Techniclone’s chief, Bonfiglio immediately put his master’s degree in business administration to the test. He closed the manufacturing plant, laid off staff and went searching for new licensing partners.
Afraid employees might bail, he asked the board for about 1 million new stock options and distributed them to everyone from the technology chief to the cleaning woman.
About the same time, the stock market’s biotech surge kicked in and assisted in the recovery.
“In a sense, Techniclone lucked out,” said Maya Wagle, analyst at Red Chip Review, who also credits management’s efforts.
Astounded employees watched as Techniclone shares climbed to new heights every day.
“We’re all smiling now,” said Paul Lytle, the company’s finance vice president. He and 14 other employees pocketed a total of almost $1 million thanks to those newly issued options. “No one’s out looking for other jobs anymore.”
By mid-February, the stock broke the $5 mark for the first time in nearly three years. This week, it hit a high of $14 a share, boosted by the announcements of new patents and licensing deals.
Though the cash crunch is over, Bonfiglio is still relocating the company to cheaper digs and is abandoning the manufacturing facility.
“We’re still alive. But we still have to prove ourselves,” he said.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Turnaround
Wall Street’s recent obsession with biotech stocks has rescued Techniclone Inc., a Tustin cancer research firm, from near-bankruptcy. The stock is up nearly 4,000% in four months.
Friday: $10.94
Source: Bloomberg News
