N EWS OF THE W EEK
MORE CHEMICAL PLANTS ARE CLOSING CREDIT CRISIS: Shrinking economy leads to new layoffs and reductions in capacity
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NOVA CHEMICALS
Nova is temporarily closing its styrenic plastics plant in Monaca, Pa.
HE GLOBAL CREDIT CRUNCH is casting a growing shadow over the chemical industry. The latest bad news is a new round of plant shutdowns and earnings warnings. Nova Chemicals and Solutia are closing plants because of slack demand from construction, automotive, and housing industry customers. Celanese warns that its 2008 earnings will be lower than previously expected, and Ashland says it will reduce its quarterly dividend by nearly 75% to preserve “financial flexibility.” And although Dow Chemical, the world’s second largest chemical company, hasn’t taken drastic steps yet, CEO Andrew N. Liveris warns that it will “take necessary, bold, and proactive measures to manage our transformation through these extremely challenging
BIOTECHS SCRAMBLE TIGHT TIMES: Companies are taking
drastic measures to conserve cash for R&D
REMEMBER WHEN
Memory Pharmaceuticals’ stock has fallen in recent months 2008 stock price, $ 0.40 0.30 0.20 0.10 0.00
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NOTE: From Aug. 25 to Nov. 24.
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S THE CREDIT CRISIS grinds on, the outlook is getting increasingly grim for many of the small biotechnology companies that have products feeding into the drug industry’s pipeline. Since October, biotech firms have been resorting to job cuts, reverse mergers, and other creative deal-making to fund their R&D efforts. Last week brought fresh examples of the challenging climate: San Diego-based Vical said it would slash 20% of its staff and close a research facility; CombinatoRx, in Cambridge, Mass., made its second staff cutback in a month; and Montvale, N.J.-based Memory Pharmaceuticals, which has drugs in Phase I and II studies, agreed to be taken over by Roche for $50 million. W W W.CE N -O N L IN E .O RG
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times.” The firm is looking at “all options” to cut costs and defer or eliminate capital spending. Only two weeks ago, the largest chemical maker, BASF, said it would temporarily slash global production capacity by about 25% (C&EN, Nov. 24, page 7). Until conditions improve, Nova is idling its 475 million-lb-per-year styrenic polymers plant in Monaca, Pa. The move affects 340 workers who make resins that end up in insulation and packaging. “We expect to restart the plant but only when we see significantly stronger demand and improving margins,” says Robert Snyder, vice president for performance styrenics. Slack demand has forced Solutia to temporarily decrease production of nylon intermediates, fibers, and resins. In addition, the firm is permanently shutting down nylon carpet fiber facilities in Greenwood, S.C., that it idled in early November. The moves affect 1,600 employees, 700 of whom will lose their jobs permanently, and are expected to save $40 million annually. Solutia says it still hopes to sell the nylon business, which it put up for sale at the end of June. The global slowdown is hurting other firms, too. Celanese CEO David Weidman says lower consumer demand has reduced sales volumes in the fourth quarter, particularly in Asia. Ashland’s CEO, James J. O’Brien, says he cut the company’s dividend for “strategic and tactical considerations.” It will allow the firm, which just completed a $3.3 billion purchase of Hercules, “to conserve cash through the trough of the economic cycle.”—MARC REISCH
The picture could get even bleaker in 2009. According to the Biotechnology Industry Organization, a trade association, 99 public companies have less than six months of cash on hand, and more than a third of “microcap” biotechs—those with a market capitalization of less than $1 million—barely have enough money to make it through the next year. It is not unusual for small biotechs to have limited cash at the ready, but they traditionally have had a fairly easy time raising that next round of financing. “The real problem is the massive compression of value,” says G. Steven Burrill, CEO of the life sciences investment firm Burrill & Co. Biotech stock prices have plummeted across the board, crimping the ability of firms to raise money from investors or through additional stock offerings. Moreover, investment banks with expertise in crafting deals that let companies survive have their own problems and thus “zero interest and zero capability” to help the biotech sector, Burrill says. Finance companies with money to invest, such as hedge funds, aren’t looking to add small struggling firms to their portfolios. Big pharma needs a healthy biotech industry to fill holes in its R&D effort, and the credit crunch “will slow up the development of the pipeline,” Burrill says. On the plus side, he adds, small companies with promising products—such as Memory Pharmaceuticals—can be bought on the cheap.—LISA JARVIS
DECE MB E R 1 , 2008
