Carburton Street, London -- How long does a loss-making company have before it needs to be profitable? The simple answer is until the cash runs out. Making a loss is not a crime but running out of cash, and not being able to pay your bills, is. But there is no fear of the cash running out at Cambridge Antibody Technology (LSE: CAT). Not yet at least. The biotechnology company has, through a number of well-timed share placements, bucket loads of money. It has £157m in the form of cash and securities, which should be sufficient to see it through to profitability.
The UK's sixth biggest drug company today posted full year results that showed pre-tax losses had widened from £8.3m to £11.8m. Turnover, which was largely derived from royalty and milestone payments, was largely unchanged at £7.1m. The company expects revenues next year to be around £6m to £8m, which will still make it unprofitable but CAT anticipates being in the black in 2005-2006. This will be two years after the launch of its first commercial product, CAT-152, for the treatment of post-operative scarring in patients suffering from glaucoma. Cash burn is expected to increase to almost £36m next year, but existing cash resources should be adequate to cover this.
The results today were largely in line with market expectations. The company has also announced some minor accounting changes to the way that revenues will be reported. This should result in less lumpy revenues in the future as licence fees and milestone payments will be recognised over the lifetime of the contract rather than on an as-received basis. However the big surprise in today's announcement was the shock departure of its chief executive and founder David Chiswell. The chief executive was reported as saying, "I am the wrong man to run an earnings-driven, bottom-line company, and that is the way the company is going".
Five years after floating on the market, and five years of successive losses, CAT looks almost set to join the ranks of profitable biotechnology companies. It has spent a long time building its comprehensive library of human monoclonal antibodies, which now consists of 100 billion different antibodies. It has signed agreements with a range of established drug developers and it has a healthy crop of drugs in clinical trials. There might be some uncertainty in the near term until a successor is found but there is no denying that the company now needs a commercial man at the helm to extract value from David Chiswell's work.
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