Yesterday, Human Genome Sciences (NASDAQ:HGSI) announced a restructuring and, get this, "plans to concentrate on drugs of highest potential." Does that mean that they weren't doing that all along?
The development of a drug like Abthrax suggests not. But I suppose there wasn't much incentive to spend shareholders' money efficiently when they could live high on the hog off of the $1.5 billion they raised back in 2000. Now that they're down to a measly $1.2 billion it's probably time to tighten the belt a bit.
Don't get misled by that $1.2 billion figure, though. While it may seem like Human Genome is awash in cash, that's simply not the case. They have a considerable amount of debt and a burn rate of over $200 million per year.
The outstanding debt is $500 million of convertible bonds that are due in three years. As the bonds are way out of the money, the debt will have to be paid in cash or the terms restructured. Taking into consideration that another $280 million in cash is restricted due to lease arrangements, Human Genome has about $480 million to play with. A bit more than pocket change, but at their current burn rate that will be gone in a few years.
So the motivation to conserve cash and focus on products that will move the company toward profitability should be clear. Restructurings among biotech companies were commonplace during the last year as many companies shifted their R&D emphasis towards their late-stage portfolios. Millennium Pharmaceuticals (NASDAQ:MLNM), Vertex Pharmaceuticals (NASDAQ:VRTX), and CuraGen (NASDAQ:CRGN) all went through this within the past twelve months. So, this is probably something the company could have done a little earlier, but better late than never.
As part of the restructuring, CEO William Haseltine is retiring. This likely marks the end of the era of annual reports full of paintings. The intention is to fill his position with someone experienced in late-stage drug development and marketing. Since this is such a high profile position, it should not be difficult to secure a top individual.
Human Genome has been criticized for not being able to deliver on its potential to develop drugs. Perhaps new management and a clear focus on product development will rejuvenate the company. This is certainly not an easy task, and it will take time, as much of the pipeline remains early stage.
Fool contributor Charly Travers does not own shares of Human Genome Sciences.
