Genta Tries to Cure Itself - The cash-strapped firm awaits an FDA approval
Raymond P. Warrell Jr. is in a position that few CEOs would envy. The chief executive of Genta Inc., a Berkeley Heights-based biopharmaceutical company, faces a cash crunch stemming from a repeatedly delayed drug launch. Warrell has had to slash more than half of his workforce since December to conserve cash while waiting for the U.S. Food and Drug Administration to approve the lead product developed by his company, which now has some 30 employees.
Moreover, Genta's 2007 annual report, issued on March 13, carries a "going-concern" warning from Deloitte & Touche, the company's auditor, that the biotech could run out of cash in the near future. Genta has not turned a profit since it went public in 1991 and has supported itself primarily by issuing stock and incurring debt. Genta is selling off Ganite, a treatment for cancer-related elevated calcium levels that is the company's only marketed product.
But Warrell, 58, insisted last week that he's not losing sleep over these matters. "In 2005, similar issues prompted our auditors to issue a going-concern," says Warrell, who worked as a researcher at New York's Memorial Sloan-Kettering Cancer Center before moving to Genta eight years ago. "In biotech, you learn to focus on the long term, not on the next calendar quarter."
The lengthy, expensive drug development cycle that most biotech companies face nearly ensures that they'll face a near-constant scramble for funds, says John Pennett, director of the life sciences practice at the Edison CPA firm EisnerAmper PC. "A going-concern opinion is to some extent a judgment call by the auditors," says Pennett, whose firm does not work with Genta.
"We know that biotechs in particular are always trying to raise money for clinical trials, so when they project their cash needs for the next year, we have to consider whether the company actually has the cash in hand, has a firm written commitment, or if it is still searching for the capital. If they're still hunting for it, then we may have to issue a going-concern."
"Biotechs are known for their extraordinary ability to either raise cash, or go into turtle mode where they cut their operations and expenses to a bare minimum until they find a funding source," says Pennett. "So it's really not unusual for a biotech to get a going-concern opinion one year, yet be able to bounce back later."
Genta faces some formidable challenges. For one thing, the company continues to struggle with its lead cancer drug, Genasense, whose application for approval was withdrawn in 2004 after an FDA advisory committee turned thumbs down on the treatment.
More bad news struck in 2005 when Aventis terminated a joint development and commercialization project for Genasense, which is designed to treat skin cancer. Genta stock traded around 40 cents a share last week, down from a 52-week high of more than $2.45 in April 2007.
"Unfortunately, biotech companies frequently encounter regulatory obstacles," says Walter Greenblatt, managing director of Walter Greenblatt & Associates. His Princeton firm works with biotechnology and medical device companies on issues involving strategic planning, raising capital and executing mergers and acquisitions.
"It's actually uncommon for a new drug application to go all the way through final FDA approval," adds Greenblatt, who has not worked with Genta. "Generally, biotech companies raise money and then after awhile they'll run out and have to try to raise more."
Warrell says he's seeking to raise the funds that Genta will need to carry it through the next year or so while he works with the FDA to finally gain approval for Genasense. Meanwhile, says Warrell, the company is moving ahead to develop new drugs.
"> We've got a diversified investor base and we're also in discussions with three larger companies about entering into a business partnership that would give us access to their [drug development and marketing] resources," he says.
"We had hoped to launch Genasense this year, but we may have to look to 2009. We believe, though, that we'll get the access to the capital we need to accomplish that."