Smaller US Firms' Losses Grow Due To R&D Costs

The smaller US pharmaceutical companies as well as biotechnology firmshave been investing heavily in R&D during the first six months of 1997, leading to sizeable net losses. However, many have managed double-digit percentage sales growth.

Allegiance, in its first full year as an independent public company, having spun off from Baxter International in September 1996, announced a decline in sales said to be consistent with the firm's efforts to reduce sales of less profitable products. Strong earnings growth combined with improved management of working capital and capital expenditures enabled Allegiance to generate $137 million of free cash flow in the first half of 1997, which in part allowed the company to retire $173.8 million of long-term debt. The company also raised its second-quarter investment in R&D by 14%.

Arris noted an increase of $18.5 million, up 22%, in year-to-date operating expenses with $15.3 million spent on R&D. John Walker, president and chief executive, said the figures underline the company's business strategy, "namely to increase our discovery pipeline and to do so via new collaborations." 1997 revenue was boosted by research support from new collaborations with Merck & Co and SmithKline Beecham, while other projects include a newly-expanded tryptase inhibition program where increased investment has led to two new clinical opportunities, ie the psoriasis and inflammatory bowel disease programs reacquired from Bayer.