After a lead drug at a biotech fails -- be it a clinical trial or a Food and Drug Administration rejection -- a cost-cutting effort is almost guaranteed to follow. Arena Pharmaceuticals
So when Chelsea Therapeutics'
Interestingly, "everything possible" includes management taking a 25% pay cut. That, Fools, is not something you see every day.
Many biotech management teams appear to be more interested in lining their pockets with funds raised through secondary offerings than making sure drugs get approved. Cell Therapeutics
That isn't to say Chelsea's management took one for the team and left everyone else safe. About 35% of the rest of Chelsea's employees are going to move to part-time status. Performance bonuses have also been halted until Northera is approved.
Again, getting to the finish line is most important. The cost-cutting measures, which also include transitioning patients from a safety study to an alternate-access program, will save the biotech $6 million at a time when every dollar counts.
While management's decisions should be applauded, it doesn't appear that it will be enough to get the company through to its next FDA decision in the third quarter of 2013. With just $18 million to $20 million expected in the bank at year-end, the biotech will likely have to raise funds before the next FDA decision. Hopefully, the confirmatory trial will come out positive, shares will rise, and the secondary offering to raise funds won't be all that dilutive to shareholders.
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Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.