The failure of Alpha-Beta Technology to make good on a $30-million state loan it spent to build a pharmaceutical plant in Smithfield shouldn’t be interpreted as a bad sign for the state’s growing biotechnology community, some local experts say.
“The fact is that biotech is a promising industry,” said Dr. Michael J. Lysaght, president of the Center for Cellular Medicine at Brown University, which is funded with state and private money. “For example, the state’s $500,000 investment in 1997 in the Center for Cellular Medicine has paid major dividends, leading to the creation of four companies that have raised approximately $3 million in outside capital and other funding for continued research and development.”
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In the case of Alpha-Beta, the company’s success – and, therefore, the state’s investment – depended almost entirely on a single product, Betafectin. The company announced Jan. 22 that there was not enough evidence that the drug would work to continue clinical trials leading to potential Federal Drug Administration approval. Betafectin was supposed to combat serious infection in patients of upper-gastrointestinal surgery.
The Nasdaq Stock Market delisted the once-hot company at the end of last month. Its stock, which once sold for $35 a share, was trading at 72 cents a share when trading was suspended.
After missing a $220,546 loan payment to the state, Alpha-Beta announced that it would liquidate its assets and close its operations in Smithfield and Worcester, Mass., setting in motion repossession of its $42-million factory by the state.
The Rhode Island Economic Development Corporation in the coming months will be looking for someone to buy or lease the plant so it can pay the $26.8 million in outstanding principal on the bonds the state sold in 1993 to finance the loan.
Dr. Joseph Hammang, director of technology transfer for the Rhode Island Economic Development Corporation and head of a task force to find a buyer, said he’s confident taxpayers will not have to pick up the bill.
“There’s been an enormous amount of interest in the plant,” Hammang said. “There isn’t a broker. It hasn’t been advertised yet. And we’ve had numerous phone calls already.”
Both Hammang and William M. Jackson, president of the Brown University Research Foundation, insisted that Alpha-Beta’s demise is not a failure for the state.
“This investment in this facility was and is now an asset that has a tremendous amount of capability,” Hammang said. “Alpha-Beta spent tens of millions of dollars in this state in wages and the building itself was built” by a local construction company.
“What we hope is to bring another company in which is going to fill the community again with productive workers and, hopefully, this time it’s going to be a great hit,” he said.
Jackson echoed Hammang.
“The state put up some money for a plant, but they still have the plant,” he said. The state’s investment is “not like the stockholders’ in Alpha-Beta who have nothing. Those are the people who are really left out.”
Christopher “Kip” Bergstrom, executive director of the Rhode Island Economic Policy Council, said he “wouldn’t recommend (the state’s) investing in a facility as a way of investing in biotechnology” in the future.
As an alternative, he pointed to the EPC-administered Samuel Slater Innovation Partnership Program, which relies on public-private partnerships to finance research projects between existing organizations.
Besides Alpha-Beta, the state has never made an investment “of that scale” in a biotechnology facility, Hammang said, noting that the state has assisted in the financing of much smaller plants. What’s more, “it’s not clear that the state would take the same approach again because the whole biotech industry is perceived differently throughout the world.”
These days, “there are not many biotech IPOs,” Hammand said. “That’s because investors understand the risk more.”
When the state struck a deal with Alpha-Beta, “biotechnology was the Internet stock of today,” Jackson said. That biotechnology “has fallen on hard times” recently says less about the industry and more about understanding and balance among investors.
“There’s certainly some really good” biotechnology investments in the mix, Jackson said. “It’s all part of the game.”
