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Affymax Plunges After Announcing Job Cuts

Wed, 03/20/2013 - 7:59am

NEW YORK (AP) — Shares of Affymax Inc. lost more than half their value Tuesday after the company said it will eliminate 75 percent of its workforce and will consider options including a sale or bankruptcy after its only approved drug was recalled.

THE SPARK: After the market closed on Monday, Affymax said it will eliminate its commercial and medical affairs organizations, cutting a total of 230 jobs. Affymax will also retain a bank to consider its strategic options, including a sale of the company or its assets or a combination with another company. The Palo Alto, Calif., company said it could also choose additional restructuring and could cease operations or file for bankruptcy protection.

Affymax said it is focusing its resources on a recall of its long-acting anemia drug Omontys. In a form filed with the Securities and Exchange Commission is also said it won't be able to make its 2012 annual report on time.

THE BIG PICTURE: Omontys is designed to treat anemia caused by chronic kidney disease, limiting the number of blood transfusions patients would otherwise need. Patients only need one dose a month, fewer than older drugs that treat the condition. The drug went on sale in April 2012.

In late February Affymax and its partner Takeda Pharmaceutical Co. recalled the drug because a small number of patients suffered a severe allergic reaction shortly after their treatment began. The companies said five patients died, and about 50 experienced the allergic reaction. That's out of around 25,000 patients who had been treated with Omontys.

Through the end of September 2012 Affymax said it had received almost $80 million in revenue from the drug. That's almost all of the company's revenue.

Omontys said it had about $67 million in cash at the end of February. It said the job cuts will cost between $8 million and $10 million. The company also says it has around $33 million in outstanding liabilities and $11 million in debt from its current facility.

THE ANALYSIS: JMP Securities analyst Michael King said he believes the company will cease operations and file for bankruptcy protection. He said Affymax and Takeda will try to find the cause of the allergic reactions, but even if they do, it will be very difficult to convince the Food and Drug Administration to allow Omontys back on the market when other drugs are available.

"From a functional point of view, the company is pretty much done," King said in a telephone interview. "They're winding down operations."

SHARE ACTION: Affymax dropped $1.83, or 62.5 percent, to $1.10 in afternoon trading. Based on Monday's closing price the stock has fallen about 82 percent since the recall was announced. The shares have been trading around all-time lows in recent weeks, going as low as $1.02 on Tuesday.

 

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