Lexicon gets panned in local newspaper... Accused of taking Texas employment money and then laying off staff. Unnamed political connections rumored to play a role.
I think that Steffy really doesn't understand the biotech business cycle. :-) :-(
graham
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chron.com
July 4, 2008, 11:10PM
Hate to say I told you so, but Lexicon looks grim
COMMENTARY By LOREN STEFFY
Three years later, I'm not feeling any better.
In the summer of 2005, the governor's office announced it was showering $50 million on Texas A&M and The Woodlands-based company now known as Lexicon Pharmaceuticals to create a genetics research lab.
It remains one of the two biggest deals involving the Texas Enterprise Fund, a $300 million puddle of money the governor doles out to grease economic development deals.
Bad taste
At the time, I said I wanted to believe this deal would work out, that it would live up to the promises and vault Texas to the forefront of genetic research. But I didn't think it would. Too much about the deal felt wrong.
Though the Enterprise Fund has been involved in a number of deals that leave a bad taste in taxpayers' mouths, the Lexicon payout had a particularly pungent political flavor.
Several large political contributors to Gov. Rick Perry were Lexicon shareholders, and they might have benefited if the deal boosted Lexicon's stock. The past three years have muted that concern, as Lexicon's shares have swooned, falling to $1.72 as of Thursday from more than $6 three years ago.
Lexicon went public eight years ago at $22, and it's pretty much been falling since.
What development?
The bigger problem is that the deal has little to do with economic development. No company was moved here, no company threatened to leave. It simply created a research consortium involving a local business and a university already funded by the state.
Under the deal, Lexicon got $35 million and A&M got the rest.
The university established the nonprofit Texas Institute for Genomic Medicine here, and the company and the institute agreed to create 5,000 jobs between them in 10 years.
So far, Lexicon isn't off to a great start. Rather than creating jobs, it's been cutting them. In late May, the company said it eliminated 100 positions, or about 20 percent of its work force.
I wasn't able to reach a company spokeswoman on Thursday by my deadline.
Originally, Lexicon was supposed to add about 1,600 jobs by the end of 2015, and the institute was responsible for the remaining 3,400.
In April, Lexicon and A&M rejiggered the terms, according to a recent filing Lexicon made with the Securities and Exchange Commission. The new deal shifts the onus for immediate job creation from the company to A&M.
Lexicon isn't obligated to create any jobs until 2012. A&M will pick up the slack until then, adding more than 1,300 before Lexicon adds any. Ultimately, Lexicon is still committed to about 1,600 jobs by the end of 2015.
A spokeswoman for the governor said changes to the agreement don't alter the overall conditions, job targets or Lexicon's obligations.
And the nonprofit institute? A&M decided to absorb that into the university system to better leverage its resources within the university's research operations, spokesman Jason Cook said.
Shrinking work force
From A&M's standpoint, its obligations under the Enterprise Fund grant are being met, he added. The institute created 198 jobs last year and is slated to add another 357 this year.
So taxpayer money is being used to create jobs at an institution that's already taxpayer-supported, while $34 million gets poured into a small company that's actually been shrinking its work force — all in the name of economic development.
For its part, Lexicon has said it could be forced to repay as much as $14.4 million, or slightly less than half, of the taxpayer money it received if it doesn't add the jobs it promised.
Good use of money?
As part of the restructured agreement, Lexicon also agreed to maintain the increased employment level through 2019, three years beyond the original agreement.
But given the decline in Lexicon's stock, the fact that it's never been profitable and that biotech startups in general are risky investments, it's unclear whether the company will even be around to make good on its promises by then.
Back when the deal was announced, I said that as much as we wanted to believe it was a good use of our money, we were left with a nagging feeling that it wasn't.
We're beginning to see why.
Loren Steffy is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays. Contact him at loren.steffy @chron.com. |
