Walking Dead: Biotech "Zombie" Companies And Why They Are Failing

October 14, 2014

By Riley McDermid, BioSpace.com Breaking News Sr. Editor

In the second part of BioSpace’s four-part Halloween series, we take a look at some of the biggest Biotech Zombies in recent years. A “zombie company” is media parlance for a firm that either exists solely on government or venture capital bailouts to exist, or a heavily indebted company that is able to repay the interest on its debts but not reduce its debts. In many cases, these biotechs have been forced into bankruptcy—or sold for parts to larger, hungrier acquirers.

1. Echo Therapeutics
First up in 2014 would have to be Echo Therapeutics , the embattled medical device company that has been attempting to restructure and find a way out of the woods for most of this year—including suspending operations entirely in September.

After announcing it didn’t have enough cash on hand to meet payroll (and putting all its employees on furlough), Philadelphia-based Echo quickly went into damage control mode.

The company has been grappling with its lead investor, activist investment firm Platinum Management, which has been pressing the firm to remove its “legacy” board members. Echo has even notified Platinum it will be returning its $5 million investment in the company under a clause in the terms of its December 2010 securities purchase agreement.

Last month Echo announced that it had retained PricewaterhouseCooper’s Restructuring and Recovery Services Practice (PwC) to help it find a way to stay in business. It said financial and strategic alternatives could include, but are not limited to, a sale of intellectual property and other assets, a merger, other business combination, a capital transaction and/or a voluntary petition for reorganization or liquidation pursuant to the U.S. Bankruptcy Code.

Translation: Echo is going to try to find a way to stay on life support a little longer—good news for its nearly four dozen employees, but the very definition of living a zombie lifestyle.

2. Regado Biosciences
Next up on the list: Regado Biosciences, Inc. , which has had a brutal series of disappointments, including a halted Phase III trial of its flagship drug, Revolixys, an anticoagulant; laying off 60 percent of its staff; and a game of musical chairs in its C-level suite.

Regado has seen its stock battered in the capital markets, after its IPO plunged from an expected $14 to $16 a share to only $4 when it debuted—the majority of which it ploughed back into Revolixys, only to see the drug shuttered in the clinical phase. And it wasn’t just a non-starter: The U.S. Food and Drug Administration slapped a full-on halt after data showed participants had serious allergic reactions that made it impossible to continue researching.

The latest news came last week, when CEO David Mazzo resigned, only to be replaced by board-approved COO Michael Metzger, who said he’s "evaluating strategic alternatives to optimize value for shareholders."

That’s usually business-speak for looking for a strategic partner, shopping the company to potential acquirers, or looking to unload assets that could bring in some quick cash to right a listing ship.

The question is now, who would want Regado? Analysts have doubted there’s much value left in the company, since its remaining pipeline is preclinical antiplatelet therapy REG3, and Phase I REG2, a subcutaneous treatment with guess what? The same active ingredients as Revolixys.

3. Marrone Bio Innovations, Inc.
Davis, Calif.-based Marrone Bio Innovations, Inc. could not buy a break in 2014. Once considered the flagship company for Sacramento’s biotech renaissance, Marrone has been battling with a shareholder revolt and plunging revenue that dropped 20 percent in the second quarter alone. Most recently, the provider of bio-based pest management solutions said Oct. 8 that it would slash head count by nearly a quarter as it tries to forge ahead in an increasingly rocky business environment.

Marrone had a promising start only a year ago: A solid IPO in August 2013 raised $57 million, and the first IPO in the greater Sacramento area in seven years, according to the Sacramento Bee. Alas, years of unprofitability finally caught up with Marrone this spring.

That led to the departure of COO Hector Absi in August—hot on the heels of a September revelation that Marrone is conducting an in-house investigation of its financial results. The company said it had discovered documents “calling into question” its previous reporting of $870,000 worth of revenue during the fourth quarter of 2013, when total revenue for that quarter had been reported at just under $6 million.

The layoffs announced last week may be the last big disaster Marrone can handle. During that announcement, the company that is attempting to streamline its operations and reduce its expenses—which usually means it is battening down the hatches as it shops for someone, anyone, to make an offer.

“We continue to push forward with a long-term, global vision for the business that remains fundamentally unchanged,” said Pam Marrone, chief executive officer of Marrone, in a statement. “At the same time, we believe that reducing expenses in connection with a refocusing of our business development efforts was the prudent thing to do. We expect to forge a stronger and more focused organization, and we remain dedicated to our long-term goal of driving value to our shareholders, our partners, our customers and our community.”

In an utterly non-shocking move, the company has already announced its goal to only move forward with projects that are projected to have the greatest near-term growth potential, as it tries to make some quick cash to cover operating expenses.

4. OPK Biotech
Last, and certainly least, on our list is OPK Biotech . The now-deceased Cambridge, Mass.-based company was a storied chronicle of how not to succeed in business when you’re trying, despite a supportive local business community and regular infusions of capital.

OPK had started out strong, developing an anemia drug, Oxyglobin, as recently as February 2013, and poaching former EMD Serono and Merck & Co. exec Yaniv Glazer to serve as chief executive.

But OPK spent most of 2014 fending off angry creditors, who eventually forced the firm into bankruptcy to collect on several million dollars of outstanding debt. In April, OPK was named in an involuntary petition in Boston’s U.S. Bankruptcy Court, but at the time was not even in operation, having shuttered most processes earlier that month.

During that time, the company allowed creditors and vendors to go unpaid—and employees to go uncompensated—as it stonewalled in an attempt to buy time to find a suitor.

OPK was eventually rewarded when HbO2 Therapeutics bought the firm for undisclosed terms, including all assets and intellectual property, in August. The company will now be headquartered outside Philadelphia, but its dealing during the rough times left many longtime staff and partners with a sour taste in their mouths.

In an ironic twist, OPK had played the opposing vulture role before. In 2009, OPK $4 million for the assets of blood-technology developer Biopure Corporation , along with a 50/50 partnership with the group that owns the company’s headquarters and some lab space. Biopure had filed for bankruptcy only months prior.

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