March 26, 2004

Biotech startup's future in question

John P. McDermott  /  Post and Courier

Its chief executive has returned to North Carolina. Its office space is on the market. One of its biggest investors isn't commenting, and even a member of the board isn't entirely sure what's up.

What is certain is that Pilot Therapeutics Holdings Inc. is not the fast-growing company it hoped to become. The troubles at the cash-strapped biotechnology company surfaced last summer when it revealed it had laid off most of its workers and curtailed operations. That was less than a year after South Carolina coaxed it away from North Carolina by offering a hefty incentive package, including more than $5 million in various taxpayer-funded economic development loans and grants in exchange for promises to create up to 180 jobs.

Now, some eight months later, Pilot's status remains a mystery. The telephones and answering machines at its Charleston headquarters still work, but the $18,000-a-month offices are empty, and messages left by The Post and Courier on the voicemail system are not returned. Also, Pilot, which is publicly traded, has not filed a quarterly financial statement with the Securities and Exchange Commission for the past two reporting periods. Its stock, which sold as high as $9.35 a share soon after it first went public in late 2001, has recently traded over the counter at 8 cents a share.

In its last SEC filing in September, the company said it was trying to raise $4 million to $6 million to replenish its coffers, rehire staff and restart operations, including a commercial rollout of its over-the-counter asthma treatment known as Airozin. Repeated efforts this month to reach Floyd "Ski" Chilton, Pilot's founder and chief executive, and Glenn Kline, a venture capitalist and company chairman, were unsuccessful.

The state Commerce Department last spoke with company officials about a month ago. "They're struggling and trying to figure out how to get to the next level, get to the next round of financing or do whatever," Bob Faith, state commerce secretary, said Thursday. "It's a very fluid situation."

Despite the money and other incentives it provided Pilot, the state's hands are tied, he said. "Unfortunately, because of the way this deal was structured, there are not a lot of options other than to stand on the sidelines, be a cheerleader and hope they make it," Faith said.

Johnson Development Associates is in a similar bind. The Upstate-based real estate company is putting the final touches on an $8 million manufacturing plant in Orangeburg it agreed to build for Pilot. At the same time, the office space Pilot had been leasing in the Blackbaud building on Daniel Island is on the market, according to Colliers Keenan, a real estate firm hired to find a new tenant for the 11,400-square-foot space. Colliers Keenan referred all other questions about Pilot to Blackbaud attorney Andy Howell, who declined to comment.

Pilot has said in SEC filings that its 18-month lease expires this year but did not specify when. Pilot was at the center of a fierce tug-of-war between North Carolina and South Carolina in the fall of 2002 when the company was based in Winston-Salem. Under then-Gov. Jim Hodges, who hoped the company would attract other biotech employers, the Palmetto State prevailed with $5 million in loans and grants and $10 million in tax credits and other performance-based incentives.

The deal, generous for an unproven company with 14 workers, drew heavy criticism from Hodges' opponents, including Mark Sanford, who eventually unseated the incumbent. Faith, who was Sanford's first Cabinet appointee, said that in the Pilot case, the state took a "venture capital risk" without putting the appropriate safeguards in place. "It strengthens our resolve that this is not the way this Department of Commerce is going to do deals," he said.

According to its last SEC filing, Pilot, which like many startups has never turned a profit, burned through all but $97,000 of its $2.2 million in cash in the preceding six months. The final straw, according to the documents, was a 30-day delay in a $500,000 state grant that the company was relying on so it could continue test-marketing its asthma treatment and fund other operations. As a result, the company said, it was forced to cut back the test-marketing of its asthma treatment and furlough all nonessential employees. The snag also iced plans for a small technology park near Daniel Island that was supposed to house Pilot's research center and headquarters.

Board member Bradley Undem, an asthma expert and a professor at Johns Hopkins University School of Medicine, referred questions on Pilot's fate earlier this month to Kline, Pilot's chairman. Undem said he missed the last directors' meeting because of a scheduling conflict, "so I'm not up to speed with what's going on with Pilot."

One of Pilot's largest investors, Durham, N.C.-based Quintiles Transnational Corp., declined to comment. Spencer Lemons, director of the Wake Forest University Office of Technology Asset Management, which owns almost 10 percent of Pilot's stock, said this week that his office has had "contact with management" but beyond that he did not know the status of the company. Lemons added that Chilton "very recently" rejoined the staff at Wake Forest, where he had been a researcher and faculty member between 1991 and 2000. The university said he is now working in the graduate-level pharmacology and physiology departments.

Chilton, whose title at Pilot includes chief scientific officer, has had to cope with more than just business turmoil in recent months. His eldest son, Josh, a high school football standout who inspired his father to start developing Pilot's asthma remedy, was involved in an automobile wreck Nov. 28 on his way to a playoff game near Winston-Salem and was paralyzed from the waist down.

All the while, Chilton has kept in touch with Charleston economic development officials, said Ernest Andrade, director of the city's Digital Corridor high-technology initiative. "We have continued to assist Pilot as they have called and asked for assistance," Andrade said. But "that assistance does not extend to the private fund-raising activities they are pursuing."