Cogent freezes activity
Wallace hopes eventually to rehire workers.
By DAVID RANII, Staff Writer
DURHAM -- Cogent Neuroscience, which last week sent its 48 employees home while top management of the cash-strapped company tried to devise a survival plan, has taken the draconian step of halting its operations and laying off its entire work force.
Max Wallace, the company's co-founder and chief executive officer, said he and a half-dozen or so senior executives are still continuing to work -- without pay -- in hopes of coming up with a restructuring plan that "can bring Cogent back to life."
"We are working on a range of options, some of which are very novel, to see [whether] what we have built can achieve its goals," Wallace said.
But, lacking the cash to pay employees, the drug-discovery company had little choice but to let employees go and urge them to look for jobs elsewhere. The employees learned their fate Monday at a 10 a.m. meeting in the company's board room at its Durham headquarters. They are being paid through the end of last week, although they were sent home last Tuesday, and also will be compensated for accrued vacation time.
"This is very hard," said Wallace, who also co-founded the AIDS drug company Trimeris. "These are people whose lives were built around Cogent."
The company peaked at 85 workers but had reduced its work force to 48 via layoffs and attrition.
Cogent, which raised $20.5 million from its private investors and was once ranked among the Triangle's most promising young biotechnology companies, was stopped in its tracks by its failure to raise additional venture capital. The company is focused on discovering drugs to treat stroke, Alzheimer's disease and other maladies of the brain, but none of its drugs have entered clinical trials.
Cogent's financial woes were accelerated by the problems of its partner in two joint ventures, the Irish drug company Elan, which is in the midst of a massive reorganization.
Venture capitalist Dennis Dougherty of Intersouth Partners, which invested in Cogent, said the company's existing investors remain supportive but aren't willing to plow more money into the business unless it can attract new investors, too. "I'm still anxiously hopeful, or hopefully anxious," Dougherty said.
Intersouth is one of several Triangle venture-capital funds that will take a financial hit unless Cogent somehow is resurrected. Other local funds that invested in the business include The Aurora Funds, Eno River Capital, Franklin Street Partners and TriState Investment Group.
Cogent isn't the only Triangle biotechnology company sent reeling by a hostile funding environment.
* Xanthon, which was developing a drug-discovery tool, ceased operating in June. The Research Triangle Park company raised a total of $25 million from investors and had 55 employees last year.
* Artecel Sciences in Durham let go 13 of its 15 employees in July after concluding it wasn't likely to raise the venture capital it needed, according to CEO Carolyn Underwood. She and the company's chief scientific officer continue to look for a corporate partner that can advance the company's technology, which includes using adult stem cells derived from fat tissue to repair facial scars or wrinkles.
* Incara Pharmaceuticals of RTP previously warned that it expected to run out of cash near the end of September, but its 25 employees remain on the job while the drug-development company investigates financing options or selling the business. Unlike Cogent, Xanthon and Artecel, Incara's shares are publicly traded.
Not all Triangle biotechnology companies have been frozen out of the fund-raising market, however.
Nobex, for example, which is developing new treatments for diseases such as diabetes, raised $35 million in August. And Serenex, a company whose technology accelerates and enhances the drug-discovery process, raised $15 million. Both companies are based in Durham.
"A lot of these companies are really struggling to [raise] money," said Jim Newton, executive director of TriState Investment Group. "If you're in a hot space and have the right science, you can get funding -- and lots of funding."
Wallace said he harbors hopes of hiring back the Cogent employees that were furloughed Monday, but that is contingent on successfully coming up with a 13th-hour plan to resuscitate the business. In the meantime, he plans to meet with employees every Monday morning to update them on the company's situation.
The challenge, Wallace said, is to devise a structure that will convince both existing and new investors that they can make money on the company. Creditors also must be on board.
What are the odds of that happening? "I don't really know at this stage," Wallace said. "I'm confident enough that we are still sitting here fighting away at it."
A CHRONOLOGY
JANUARY 1998 -- Max Wallace, one of the co-founders of the local AIDS drug company Trimeris, announces he has teamed up with two Duke University scientists, Larry Katz and Donald Lo, to form Cogent Neuroscience.
OCTOBER 1998 -- Cogent raises $5.4 million from five venture-capital funds, four of which are based in North Carolina. "We did a chamber of commerce deal," Wallace quipped.
APRIL 2000 -- Cogent plans to triple its work force after raising $15 million in new venture capital -- twice as much as it set out to raise.
APRIL 2001 -- Cogent sponsors the first-ever symposium on neurogenomics -- an emerging field that applies genomics to the study of the central nervous system -- in conjunction with the University of North Carolina at Chapel Hill's Neuroscience Center and Duke University Medical Center's Division of Neurology. Two Nobel Prize laureates are featured speakers, including DNA pioneer James Watson.
SEPTEMBER 2001 -- Cogent begins seeking $15 million or so in financing, a few days before the Sept. 11, 2001, terrorist attacks sent the venture-capital market reeling.
OCTOBER 2002 -- Cogent sends its 48 employees home while top officials try to structure a plan to save the cash-strapped company. Wallace said Monday that the company is effectively shutting down, but he will continue to devise a plan to "bring Cogent back to life."
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