Disaster is defined by Merriam-Webster as a sudden or great misfortune or failure.

In 2006, NPS Pharmaceuticals had certainly experienced its own “disaster.” With much of the company’s resources dedicated to building a commercial infrastructure in anticipation of FDA approval of its lead product for osteoporosis, the company was thrown a curve ball. NPS received an approvable letter requiring an additional clinical trial, with the consequence of delaying a potential approval by at least four years.

NPS’s stock fell nearly 40 percent on news of the FDA’s action, cash reserves were running out, and the company was faced with a significant debt burden of $191 million that was due in 2007.

Sadly, this scenario is all too familiar to many development-stage company executives.

I joined NPS to help deal with the aftermath of the corporate setback. Before we could evaluate our long-term options, the company needed to stop the bleeding by dramatically reducing cash burn, while maintaining a functional organization. This drove the painful, but necessary, first step of reducing headcount by 53 percent (230 full-time employees) by eliminating the commercial and medical affairs organizations and closing one of the company’s sites.

Then we had to ask ourselves “what next?” Was there a path forward for NPS as an innovative biotechnology company, or were we fated to take a safer route at the cost of creating value? While we evaluated and later implemented our long-term strategy, we learned many valuable lessons, some of which I share with you here.

1. Choosing a company mission based on a “the road less traveled” can ultimately be more rewarding and create greater value for investors and patients.

We shifted our focus from the primary care setting to rare disorders with high unmet medical needs, limited competition, and treatment by physician specialists. This focus created a path forward in which … Next Page »

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When Ashleigh Palmer joined Boonton, NJ-based biotech company Unigene Laboratories as CEO in mid-2010, he faced a turnaround challenge that others might have considered way too daunting. The 30-year-old company was struggling to make money from a disjointed set of assets, which included a promising but, in Palmer’s view, under-marketed technology that could be used to turn injectable peptides—or protein-based drugs—into easy-to-swallow pills. Unigene was in debt and in need of a rescue. Furthermore, says Palmer, it had been managed by the two scientist-founders, who were brothers. “There’s the first warning sign,” Palmer says. “Family and business often don’t go well together.”

Wall Street has yet to be convinced that Palmer has what it takes to turn around Unigene’s fortunes. Unigene (NASDAQ: UGNE), which went public in 1985, was delisted in 1999 and pretty much left for dead by investors. On November 9, Unigene announced a net loss of $7.2 million for the third quarter ended September 30, on $3.4 million in sales. The company’s revenues included royalties from a nasal spray it developed to treat the degenerative bone disease osteoporosis—a product that that Unigene licensed to Maple Grove, MN-based Upsher-Smith Laboratories but that hasn’t been selling well due to competition.

The stock, as usual, barely budged—edging down 2 percent to $1 after the earnings announcement.

Palmer has been doing his best to get investors to focus on the good news. In conjunction with its earnings announcement, Unigene announced positive Phase 2 trial results on an osteoporosis drug it is developing with European drug giant GlaxoSmithKline (NYSE: GSK). The drug is an oral form of parathyroid hormone (PTH), the protein that’s the basis of Eli Lilly’s blockbuster osteoporosis injection teriparatide (Forteo). In the trial, Unigene’s drug produced a statistically significant increase in bone mineral density in the lumbar spine—a measure used to predict fracture risk. It was the result the companies were hoping to see.

Wall Street’s reaction? Crickets.

Then, yesterday, the company announced that an osteoporosis drug it was manufacturing as part of a partnership with Novartis (NYSE: NVS), Danish drug developer Nordic Biosciences, and Cedar Knolls, NJ-based Emisphere performed poorly in a late-stage clinical trial. Unigene has already received $13.7 million out of $18.7 million in potential payments from Novartis under a 2004 licensing agreement, and Palmer said in a statement that the setback would make little difference to the company’s turnaround effort. Still, it was enough to knock Unigene’s stock down by a dime.

As far as Palmer is concerned, the company’s relationship with GSK is the key element of his turnaround plan. GSK first partnered with Unigene in 2002 with the intention of developing a synthetic, oral form of PTH. But the first generation product didn’t work, and GSK lost confidence in Unigene, Palmer says. So shortly after he joined the company, Palmer and his team went to GSK and presented new data on … Next Page »

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When Big Pharma veteran Robert Doman joined tiny Wilmington, MA-based Dusa Pharmaceuticals (NASDAQ: DUSA) in 2005, he found a company struggling to capitalize on a massive market opportunity. Dusa had won FDA approval in 2000 for a drug-device combination to treat actinic keratoses (AK), pre-cancerous skin growths. There are about 5 million cases of AKs treated each year—a number that’s growing more than 6 percent a year, says Doman, Dusa’s CEO.

But Dusa’s device—which uses blue light to activate a drug called aminolevulinic acid HCl—wasn’t catching on with dermatologists. “The initial launch didn’t go well because it didn’t have good [insurance] reimbursement,” Doman says. And Dusa had just “a handful” of sales reps, he says. The company lost $20 million in 2005.

Contrast that scenario with today, and it’s clear Dusa has gained some respect in the dermatology market. The company, which will be announcing its third-quarter earnings this morning, is expected to bring in about $44 million in revenues this year. Sales of the treatment, which the company brands Levulan Kerastick, have grown 34 percent on a compounded annual basis over the last five years. Dusa turned profitable last year, and in the first six months of this year it was cash-flow positive to the tune of $4.5 million.

Doman has spent the last six years building Dusa’s salesforce up to include 45 reps, and working to ensure physicians would get properly reimbursed for doing the procedure.

Doman estimates Dusa has grabbed about 5 percent of the market for AK treatments—not bad, but he wants much more. So later this month, Dusa will be starting a Phase 2 trial in more than 200 patients that’s designed to prove the company’s device can not only remove large quantities of AKs quickly, but it can also prevent them from recurring.

Dusa’s treatment was originally developed as a rather involved two-step process. Dermatologists must apply the drug to the AK lesions and then send patients home … Next Page »

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When the customer that would transform their business came calling, the entrepreneurs behind Seattle’s EVO Media Group weren’t exactly flying high.

After a $1.5 million fundraising round and a period of rapid hiring, the three-year-old startup was confronting an intractably slow economy and a target market that wasn’t generating enough sales. EVO was forced to cut staff—again—as it looked for a way to wring more money from its flagship website-building service, DevHub.

Things were about to get better. In October, EVO got an unsolicited lead on not just a new customer, but a whole new line of business, when a major phone directory company contacted the company to ask if DevHub was available as a private-label service.

Uh, yeah, they could handle that. Less than a year later, the private-label business is the primary revenue source—about half of revenues now, and growing every month—and has EVO on the road to sustained growth and higher profit margins.

The customers in DevHub’s sweet spot now are businesses like domain registration sites or yellow pages directories, which can offer website-building services as a way to land more small- and medium-sized business customers of their own. Those bring a lot larger base all at once than DevHubs’s old method of upselling a free product to small website or blog owners.

“We’re really targeting and talking to companies that have these captured bases of probably a minimum of 5,000 small businesses,” co-founder Daniel Rust says. “But we’re flexible, as long as they have a market or a base sort of idea. Right now, we’re working on rolling out a new implementation in New Zealand with a partner that’s going to start doing franchised website building.”

Rust and his co-founder, Mark Michael, sound cautiously optimistic that they’ve hit upon a strong, sustainable business at this point. But they’re also not shying away from the difficult lessons of the past few years, offering a remarkable frankness that might serve as a warning to young entrepreneurs bewitched by tales of swift success and seven-figure checks.

Right now, they say, EVO costs about $20,000 per month to operate. Contrast that with the biggest-spending days, when the company was burning through $120,000 to $150,000 a month. But here’s the rub: All that spending and a staff of about 20 allowed EVO to crank out the … Next Page »

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Pleasanton, CA-based Ellie Mae (NYSE Amex: ELLI), which provides software used by mortgage lenders to underwrite home loans and related transactions, says today it has acquired Del Mar DataTrac, a privately held competitor in San Diego. In a statement, Ellie Mae says it agreed to pay $17.2 million at closing, with another $8 million in total cash payments due over the next three years.

Del Mar DataTrac has more than 200 customers that use its mortgage origination software to process and fund home loans, manage secondary marketing transactions, and provide other services. The specialized company sells its software mostly to small-to-medium-sized mortgage lenders. Combined, the two companies say their software could potentially process 30 percent of all U.S residential mortgages this year.

The deal marks the culmination of the second successful turnaround at Del Mar DataTrac for TVC Capital, a small San Diego private equity firm, and Jeb Spencer, a TVC co-founder and managing partner. The local investment firm paid about $7 million in 2001 to acquire Del Mar DataTrac, and Spencer served in a leadership role while the company grew dramatically during the mortgage industry boom. TVC sold Del Mar DataTrac in 2005 to Fiserv, the Wisconsin financial services giant, for an estimated $24 million.

Del Mar DataTrac fared poorly under Fiserv, however, as home prices nationwide peaked in mid-2006 and colossal losses in the subprime market drove a collapse of the nation’s housing and mortgage industries. TVC Capital bought the company back from Fiserv for an estimated $4 million in early 2008.

Ellie Mae says Del Mar’s operations will remain in San Diego. Spencer, who was Del Mar’s chairman, has joined Ellie Mae’s board of directors, and Del Mar president Rob Katz has been named Ellie Mae’s executive vice president of product strategy.

Ellie Mae CEO Sig Anderman says he founded the mortgage management software company in 1997 to automate the loan origination process and streamline the business for its customers. “So the addition of the impressive Del Mar team and customer base is a big milestone for us.”

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Exactly two years ago, Lexington, MA-based Amag Pharmaceuticals (NASDAQ: AMAG) took a giant step forward in its effort to morph from a manufacturer of diagnostic-imaging products to a developer of cutting-edge drugs. The company introduced its first therapeutic product, ferumoxytol (Feraheme), an intravenous injection to treat iron deficiency in patients with chronic kidney disease. Investors rejoiced, pushing the company’s shares from $25 in March 2009 to well beyond $50, as the product approached its July launch that year.

Then the FDA received reports of side effects from Amag’s new product, and the tiny company—which had nothing else in the pipeline—took a thrashing on Wall Street. “We met with the FDA to ask what they were seeing, and we provided [safety] data to them,” recalls Amag’s CEO, Brian Pereira, a trained nephrologist who invited Xconomy to breakfast in New York last month, along with Amag’s chief commercial officer, Gary Zieziula. “Nonetheless, we were required to update the label.” The updates, which included bolded warnings about anaphylactic-type reactions and abnormal blood-pressure drops, appeared last November. By late that month, Amag’s stock had dropped below $14.

Now, as it prepares to release its second-quarter earnings report, Amag seems firmly ensconced in an upswing. So far, the company is standing by its prediction that it will generate $55 million to $60 million from ferumoxytol sales this year—about even with last year, despite the safety concerns. On May 31, influential biotech analyst Christopher Raymond of Robert W. Baird & Co., declared that the product had turned a corner and the company’s shares had bottomed. The stock rose 10 percent to $18.46 on quadruple its previous sales volume. And on June 21, Amag announced that the FDA would allow it to tone down some of the safety language on the ferumoxytol label, and drop the recommended time that physicians keep a watch on patients after they administer the drug from 60 to 30 minutes. By July 8, the stock had edged up to $19.30.

The turnaround has been far from easy for Amag. When the company first boosted the safety language on the new drug’s label, Zieziula recalls, it blasted its physician and hospital customers with faxes and mailings describing the change. Then its 70-plus salespeople fanned out and visited all their customers personally, to answer questions and soothe frayed nerves. Now, says Zieziula, “We’re back on track in terms of confidence.”

Pereira believes Amag’s iron product offers advantages that will allow it to continue to build traction in the market. Amag’s core technology is a coating made of a complex carbohydrate, which binds the iron so the body can more effectively absorb the mineral. Its dosing regimen—two treatments over the course of a week, each lasting 17 seconds—is simpler than that of competing products, which require five to 10 treatments over a month, each lasting 15 minutes to an hour. “It’s also more convenient for payers, because they don’t have to pay for five to 10 infusions,” Pereira says.

Amag has partnered with Japanese drug giant Takeda to take ferumoxytol into Canada, Europe, and other overseas markets. And it has started a trial aimed at expanding the product’s U.S. label to include all patients with iron deficiency, regardless of the cause. “The big opportunity is … Next Page »

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In the years after the Berlin Wall crumbled, San Diego’s Mitek Systems was one of many local defense contractors left high and dry by a receding tide of Pentagon spending. These days, however, the company is riding a wave of success with new technology that enables a person to use a smartphone camera to deposit checks and conduct other mobile transactions.

“We have created awareness in the payment industry as an innovator,” says Jim DeBello, a one-time Qualcomm executive who stepped in as Mitek’s CEO in 2003, and has served on the company’s board since 1994. “We really look at the online camera as a device bridging the physical world with the digital world.”

As I reported last year, Mitek says its technology saves consumers from a trip to the bank or automated teller machine by enabling them to use their smartphones as scanning devices. After initiating a mobile-banking session, a user snaps photos of the fronts and backs of the checks they want to deposit. Mitek’s cloud-based software then delivers enhanced images of the deposit in the format required for specific banks and financial institutions.

Today the company’s financial results remain small—Mitek posted sales of nearly $2.9 million for the fiscal second quarter that ended March 31—yet that represented an 89 percent gain over sales of $1.35 million in the same quarter last year. As the company announced new customers, which now includes PayPal, Chase, Bank of America, and Capital One, Mitek’s stock has soared by 1,150 percent—-from 56 cents a share on April 6, 2010, to $7 a share yesterday.

Jim DeBello

“Five out of the top 10 banks have signed agreements to use our flagship technology for mobile deposits,” says DeBello. The Mitek CEO says the company also has agreements with nearly all of the channel partners that serve banks and financial institutions in North America, including Fiserv, NCR, Diebold, and FIS.

More recently, a regulatory filing shows Mitek closed a $15 million private placement to boost its working capital as part of its plan to move its listing from the over-the-counter bulletin board to the Nasdaq Capital Market.  The company had almost $3 million in available cash at the end of March, and the Nasdaq listing is expected to heighten Mitek’s visibility with investors. Mitek submitted its application to Nasdaq several weeks ago, and already meets the exchange’s financial and reporting requirements, DeBello says.

The company’s increasing momentum has been vindicating for John Thornton, who became Mitek’s board chairman in 1987 and has served as … Next Page »

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Motorola (NYSE: MOT), the mobile communications technology giant based in Schaumburg, IL, is scouting sites in Chicago, Dallas, and California for the headquarters of its cell phone spinoff set for next year, according to Crain’s Chicago Business. San Diego is among the California cities under consideration, according to an interview with Motorola co-chief executive (and former Qualcomm COO) Sanjay Jha that was published yesterday in the San Diego Union-Tribune.

Motorola recruited Jha in 2008 as its turnaround man, naming him co-CEO and head of its mobile phone and cable set-top box businesses. The company initially planned a spin off in late 2008, a split that got postponed until 2011. Motorola’s core infrastructure business (which makes wireless network gear and police radios) will remain in Schaumburg.

Jha also has suggested Silicon Valley as a possible headquarters for the new company, citing the deep pool of high-tech talent during an interview three months ago. In Sunday’s Union-Tribune interview, Jha says a key factor in deciding where the mobile and spinoff should be located depends on how much business it does in China.

“In San Diego, we already have a very big facility,” Jha told the Union-Tribune. “As you know, I have the mobile business as well as the set-top box business. The set-top box business has very deep roots in San Diego. I think my links to San Diego, if anything, deepened as a result of having that business.

“But I don’t know that we have made that decision. Is San Diego a possibility? When we get engaged with it, we’ll definitely consider San Diego. My family, you know, still lives there. I have a special place for San Diego in heart.”

I sent queries to several Motorola public relations staffers by e-mail earlier today, but they didn’t immediately respond. The company did issue a statement today in its home media market, which was picked up by the website Chicago Breaking Business, which is affiliated with the Chicago Tribune and WGN.

“If Mobile Devices and Home make the decision to relocate its headquarters, this would affect less than 200 people and would not occur in 2010,” the company said in a statement. Motorola has more than 10,000 employees in the Chicago area. The company’s mobile devices division is currently based near Chicago, in Libertyville, IL.

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The defense and aerospace industries dominated San Diego’s economy for decades after World War II. General Dynamics was the region’s largest private employer, accounting for about 15 percent of the county’s workforce (with about 46,000 employees) in the early 1960s; its workers built commercial aircraft, Atlas rockets, and cruise missiles.

When General Dynamics began pulling up its stakes almost 25 years ago, the San Diego economy went into a tailspin, and local leaders focused on finding ways to diversify. Many smaller defense contractors shifted from manufacturing to the defense technologies that remained in high demand—especially military IT (which includes communications, computers, intelligence, surveillance, and reconnaissance). Some pursued similar opportunities in the commercial sector for wireless communications, IT, sensors, and systems integration. A small consulting company Linkabit, started by two UC San Diego professors, paved the way for San Diego to become the wireless center of the world. Similarly the founding of a successful biotech startup called Hybritech by UC San Diego professors became a paradigm in our efforts to broaden and diversify San Diego’s life sciences industry.

So what have we learned?

—Analyze what you do best and do that. During the recession that hit 25 years ago, San Diego decided to focus on commercializing discoveries from our local academic and research institutions. Local research institutes have expanded from 10 back then to 50 today. Michigan has great research institutions as well, so focus on them for inspired innovation.

—Don’t minimize the importance of small companies. You have to start somewhere. San Diego isn’t particularly well-known for its large corporations, but we are really good at starting hundreds of small high-tech, high-wage companies. Last year was not a great year for job creation anywhere, yet San Diego added 1,100 new technology-related jobs. And the salaries in those jobs are nearly twice the average wages in the area. I recommend a recent column on “Just Doing It” by Thomas Friedman in the New York Times.

—Cultivate technology clusters. In 2004, the Milken Institute published a report that ranked San Diego as the nation’s No. 1 biotech cluster. The report says “Clusters of existing and … Next Page »

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After slashing 17 percent of its workforce and making other cutbacks, San Diego’s Overland Storage (NASDAQ: OVRL) announced today what CEO Vern LoForti describes as a significant initiative in the company’s turnaround effort.

The longtime maker of data storage equipment has been reeling since 2005, when Hewlett-Packard said it was phasing out purchases of tape-based storage equipment that Overland made under HP’s brand name. Overland makes a variety of tape and disk-based data storage equipment, but its business continued to erode.

Now LoForti, who has been trying to turn around Overland as CEO since 2007, is announcing the creation of “a solutions engineering group” that will work with partners to develop and integrate “end-to-end” data storage systems for its customers. The move follows a $9 million financing in December and a restructuring last week that reduced Overland’s workforce by 53 employees, or 17 percent, to a total staff of 275. (An update to the Xconomy San Diego layoff tracker is here.) The company also implemented a 10 percent pay cut for all salaried employees, including LoForti and other executives.

“This new strategy fits right in to this restructuring at Overland, where we’re leaner and meaner,” LoForti says. The company plans to use its partnerships with Mobotix Vision Systems, which makes video surveillance and Internet-based archiving systems, and with a software developer to provide “plug and play” data storage systems for its customers. Using partnerships to develop such systems “means we don’t have this huge R&D cost” LoForti says.

Overland intends to provide its systems to meet customers’ data archiving and business continuity needs, and for Internet-based “network video recorder” systems. Ravi Pendekanti, Overland’s vice president of worldwide sales and marketing, is particularly encouraged by the booming demand for video surveillance technology. “What most people want,” Pendekanti says, “is to store their surveillance data—but to be able to retrieve the video in the event something happens, whether it’s a slip and fall on company property or a terrorist act.”

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