Biotech Values

[DewDiligence]

Re: The management change and the IL-9 program:

>> It is redundant for a 20+ employee company to have both a CEO and a COO. <<

I agree and posted to that effect on Yahoo. Between Levitt, Armstrong, Skolas, and Vogel, GENR has more than enough managerial firepower for a small company.

>>…the CMO [Vogel] is only there in an "Acting" capacity. This implies less of a rational transition and gives the move the feel that it was done with a sense of urgency, before a smooth change could be put in place. <<

Again, I agree. I think the departure of Holroyd adds yet another piece of circumstantial evidence to the case that the IL-9 program is in trouble. Let’s review:

1. The IL-9 phase-1 trial was initially scheduled to begin in 4Q03. Then it was delayed to 1Q04, then to the first half of 2004 and, most recently, the guidance slipped to an unspecified time during 2004 (presumably not the first half).

2. On March 8, GENR announced an extension to the IL-9 collaboration with the Ludwig Institute (#msg-2545526). This announcement would have been an obvious place to clarify the relationship between GENR’s Ludwig collaboration and GENR’s MEDI collocation but, alas, GENR’s PR contained barely a mention of MEDI. To the consternation of some GENR longs, I interpreted the Ludwig PR as an indication of trouble in IL-9-land (#msg-2551636).

3. The following day (March 9) I called MEDI’s IR for clarification (#msg-2559463). I tried to ascertain if there was a technical problem of some kind with starting the IL-9 trials. The answer was that there wasn’t –the program was delayed because, well… because it was delayed. The tone of voice and hesitation suggested something was up. I thought then that the FluMist debacle had perhaps led MEDI’s B.O.D. to order a rationalization of MEDI’s entire drug pipeline, and this scenario seems even more plausible today.

4. Yesterday, GENR released its 2003 financial results and corporate achievements. The reference to the MEDI collaboration was minimalist and boilerplate. Later in the day, GENR filed the 2003 10K report, which cast further doubt on the timing of IL-9 program. Although SEC filings are notorious for emphasizing risks and uncertainties, the language in GENR’s 10K about the IL-9 program surpassed the usual caveats.

5. Today, we have the departure of one of GENR’s top officers who also happens to be a pulmonologist.

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Conclusion: you don’t have to be Kojak to see a pattern here.

I think GENR’s IL-9 program would hold great interest to another partner; if MEDI doesn’t want to play, I hope they will decide promptly so GENR can get the ball rolling with someone else.

>> Management's biggest failing since I have been following the issue is their inability to close a deal. Maybe this was laid at Holroyd's door…<<

This is possible, but I think the simpler and more obvious explanation for Holroyd’s departure is the status of the IL-9 program.

>> To conclude, if the shuffle clears the way for a deal, this is a big positive. <<

If losing Holroyd as a full-timer is what made it possible to hire Vogel and still stay within the budgeted cash burn, you may be right about the management swap being a big positive.