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ANALYSIS: Can Rathmann Rescue Hyseq?

NEW YORK, Feb 8 – Hyseq’s dwindling cash reserves notwithstanding, many investors and analysts expressed confidence that CEO George Rathmann would recruit the necessary financing to keep the company afloat.

The Sunnyvale, Calif.-based biopharmaceutical company said this morning that its reserves had dropped to just $2.7 million at the end of 2000, down from $30 million a year previously, and that Rathmann would extend a $20 million line of credit to help finance the company’s drug development efforts.

But, with no commercial products ready for launch and legal bills from a costly battle with Affymetrix mounting, the company’s future depends on its ability to convince more investors that Hyseq is worthy of their money.

Rathmann himself admitted that his $20 million line of credit would not be enough to get the company through the year. “It’ll last less than 12 months, that’s for sure,” he said in a conference call with investors to discuss fourth-quarter earnings (see earlier story).

Nevertheless, those familiar with Rathmann’s stunning success as the founder of ICOS and Amgen, which had the biggest biotech IPO of 1997, said that this biotech guru had the ability to keep Hyseq in the game.

“I wouldn’t count them out,” said Winton Gibbons, an analyst with William Blair. “I would suspect he’s got the contacts to get them the money.”

After a stalled attempt at licensing its biochip technology, Hyseq under Rathmann is now busily transforming itself into a pharmaceutical company. The company hopes to manufacture and file Investigative New Drug registrations with the FDA on two proteins, as well as develop two new drug targets by the end of 2001.

To accommodate their research, Hyseq is building a 34,000 square foot laboratory space, to be completed by the middle of the year. Their research is also seen as having yielded some potentially interesting finds.

“One of the things that’s overlooked is that Hyseq has done more tissue sampling—they’ve dug deeper into tissue analysis,” said Chris Wolf, Hyseq’s former CFO and still a significant shareholder. “They’re likely to have found rarely expressed genes.”

The management team that Rathmann has assembled also inspires confidence, said Christina Bedrijj, an analyst with Griffin Securities. In January, Rathmann hired Ted Love, formerly with Advanced Medicine, to head Hyseq’s drug development efforts.

“It seems like his team is getting much stronger—they’re putting the structure in place,” Bedrijj said.

Wolf also remained optimistic about Rathmann’s ability to make the company succeed, based on his past record as CEO of Amgen and ICOS. “When Rathmann says he has great confidence in the financibility of his company, I would take his word for it,” he said.

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