As the new president and chief executive officer of North American Vaccine Inc., one of Randal Chase's toughest tasks may be convincing investors he can steer the company out of the quagmire it's been in for the past year.
A pharmaceutical industry veteran who was brought in after longtime President Sharon Mates was fired in September, Chase has been moving to calm the waters at the Columbia-based vaccine developer and get employees refocused. Among his first acts after he arrived in November was to recommend that every employee be given stock option grants.
While such "nonexecutive" employee stock option plans are becoming more widely used in corporate America to attract and retain talent, Chase sought the employee options to underscore management's conviction that the company had bright prospects.
"I wanted to reassure employees that despite the difficulties of the past, this is a company that fundamentally is worth being excited about. It's got a terrific pipeline of products and some of the most experienced and brightest people in biotech today," Chase said.
Nevertheless Chase, the 49-year-old former head of Canadian operations for vaccine maker Pasteur Merieux Connaught, has his hands full at the company, which reported a $56.6 million loss on revenue of $8.4 million in 1998.
And the few analysts who follow the company aren't as bullish as Chase about North American's outlook.
"This is a company that once was in a leadership position, but came last to the market with their most promising product. It killed them," said Evan Sturza, founder of Sturza's Institutional Research, referring to the company's approval for its whooping cough-diphtheria-tetanus vaccine for children, Certiva, last summer.
A former short seller of the stock, Sturza believes Chase was brought in not to resurrect the company but to orchestrate its sale.
Chase, Sturza said, has less than six months to strike a deal before the company runs out of money to fund operations.
Cash is going fast
According to its most recent financial statement, the company had about $23 million in cash on hand as of Dec. 31 and is burning up money at the rate of about $12 million a quarter.
Chase said he wasn't hired to find a buyer for North American, but acknowledges that the board would seriously consider an offer.
"Undoubtedly they would," said Chase. "But for right now, I've been brought in to increase the value of the company and get it living up to its full potential."
The executive said no merger or acquisition offers for the company are on the table.
Chase said he expects the company to strike a "medium-size" licensing deal for one of the company's development-stage products this year. That, he said, would bring in additional money to keep the company solvent.
He estimates that the company will have enough cash to operate through this year, but will need to raise money next year.
Rough year for company
The current cash crunch is directly related to events of the past year, a rough one for North American.
The 10-year-old company struggled for much of last year after its effort to get Certiva cleared by the Food and Drug Administration was delayed when the regulator asked for additional supporting documents.
The unexpected delay meant the loss of anticipated income and sent North American's stock plunging.
Few niches of the drug industry are as tough to compete in as pediatric vaccines. The arena historically has been dominated by a few well-heeled players: SmithKline Beecham PLC, Pasteur Merieux Connaught and American Home Products.
The industry is so competitive and requires so much capital and other resources that North American is the only "independent" vaccine developer in the United States.
FDA approves Certiva
The FDA finally approved Certiva in July -- more than 12 months later than analysts had expected.
FDA drug approvals often buoy a biotech stock, sometimes to new heights. But by August -- a month after the FDA approval -- North American's stock sank to a low of $6.25, significantly off its high for the year of $25.
Then came a series of internal upheavals. In September, the board of directors fired Mates, president since 1991, and announced that two of the biggest preferred shareholders, BioChem Pharma Inc. of Canada and Dr. Phillip Frost of Miami, were stepping in to shore up the cash-strapped company with a $25 million loan.
Mates, 45, countered with a lawsuit, alleging that she was ousted because she objected to the loan terms and that the lenders wanted her out so they could sell the company. The company countered that the suit, pending in U.S. District Court in Greenbelt, was a shakedown.
The turmoil and cash woes have led many of the company's largest institutional holders to shed the stock, including New York-based Delphi Asset Management, which until late last year was the third-largest shareholder with 8 percent. It dumped its entire 2.6 million shares in December.
'Full potential' is aim
Now Chase says he's got his sights firmly set on getting the company to realize its "full potential."
His three-legged strategy: a strong focus on key product development, generating new marketing and distribution agreements with pharmaceutical houses to leverage their marketing prowess, and a "pro-active" approach to "telling the company's story."
"We haven't told our story well. That's our burden to address," he said.
To dress up its public profile, Chase said he plans to bring in an experienced investor relations and media manager soon. He and other North American executives have been meeting with top biotechnology analysts to outline the new strategy and stir up coverage of the company.
The most important leg of Chase's turnaround strategy, he said, is getting the company focused on advancing the most promising drugs in North American's pipeline.
"We've got to achieve much greater focus," said Chase. "One of the problems I think this company has faced in the past is that its pipeline is so rich."
Immediate priorities
With that strategy in mind, he has focused the company's immediate priorities on getting to market an adult version of its vaccine for pertussis, or whooping cough; and a vaccine for Group C meningitis, one of the most common causes of the infectious disease.
"It's often said it's not how many races you run, but how many you win that counts," said Chase. "I want us to focus on projects we can run across the finish line. Pick out what matters most and do them quickly."
Along with the U.S. approval for Certiva, the company already has approval to market the vaccine in five European countries. It has won approval to market a combination vaccine offering additional protection against polio in four European countries.
Human trial
This year Chase anticipates the launch of a large-scale human trial of meningitis vaccines -- including North American's -- in children in the United Kingdom, and the completion of a midstage human trial of its adult pertussis vaccine, Amvax, in the United States.
Both could generate significant revenue, he said.
For the immediate term, Chase will be busy managing the company's cash flow and working out production difficulties the company has experienced at its Beltsville manufacturing plant, which have kept the costs of making vaccines high.
Chase said the company expects to complete improvements in the production plant this year and to see that investment reflected in the bottom line.
Looking ahead, Chase says he's well aware of the need to astutely manage the company's cash flow. For one, he expects a tricky decision ahead on whether to book revenue from vaccine sales and royalties in the United States and Europe as profit to boost shareholder value, or to reinvest the revenue in the research and development pipeline.
Said the executive, "A lot of what is ahead is a question of balance."
Pub Date: 3/07/99