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As Ciphergen Lays Off One-Third in Reorg, ABI, Waters, and Thermo Named Likely Suitors

Ciphergen has laid off approximately 45 staffers, or around one-third of its workforce worldwide, as part of a broader restructuring aimed at saving costs, according to several people familiar with the events.

The restructuring, amid significant and ongoing declines in revenue and share price, could make Ciphergen an attractive takeover target, especially by large mass spectrometry tool vendors, according to people familiar with the market and with the developments at the company.

It is unclear whether the company has been discussing options that include divesting all or part of its corporation. However, people familiar with Ciphergen's technology and with the restructuring suggested that Waters, Thermo Electron, and Applied Biosystems are likely suitors.

These companies would be interested in Ciphergen for its SELDI technology — chips with chemistry coupled to MALDI mass spectrometry — which in theory could run on their MALDI mass spectometers. The SELDI technology, though popular among biological researchers eager to dip their toes in the mass-spec field, has been hamstrung by Ciphergen's own mass-spec platform, which is generally believed to be a low-end instrument.

A spokesperson for Ciphergen declined to comment. An ABI spokeswoman said the company does not comment on market rumors. A Waters spokeswoman said the company does not comment on potential or possible acquisitions. Officials from Thermo were not immediately available for comment.

The job cuts trimmed Ciphergen's headcount to around 115 and included a reduction in certain severance packages, which were cut by as much as half in some cases, according to people familiar with the reorganization. The steps affected the entire company, including sales, marketing, research and development, and customer service, these people said. It was not immediately known how much money Ciphergen hopes to save in the short term or annually by taking this step.

Upper management will meet as early as this week to discuss details of the reorganization, according to these people, though topics of their discussions were not immediately known. These people spoke on the condition of anonymity because they are either current employees, in which case they fear reprisals, or they are former employees who signed non-disclosure agreements.

The restructuring, which occurred mostly last Friday, comes at a time when Ciphergen has been weakened by substantial stock declines and revenue shortfalls. The company's stock has lost more than 75 percent of its value since January 2004, while receipts have sunk by more than half between the first quarter of 2004 and the same period in 2005. Meantime, Ciphergen's first-quarter losses widened 25 percent to $9.3 million year over year. The company had around $37.5 million in cash, equivalents, and short-term investments as of March 31. Ciphergen plans to release second-quarter earnings Aug. 8.

In the ensuing months, Ciphergen has made strides in at least two components of its business: biomarker discovery and molecular diagnostics. In June, Ciphergen said Bayer tapped it to help it identify biomarkers and develop an assay that could be used in its clinical trials in cancer.

And few a weeks later — though it missed its self-appointed deadline — Ciphergen announced that Quest Diagnostics acquired a 17-percent stake in the company as part of its intent to develop and commercialize proteomic diagnostic tests based on the SELDI ProteinChip technology.

Quest purchased 6.2 million shares Ciphergen's common stock, essentially gaining working control of the company, and obtained a five-year warrant to buy an additional 2.2 million shares for an aggregate price of $15 million.

Quest has also agreed to loan Ciphergen up to $10 million to fund certain development activities. The loan would be forgiven if certain undisclosed milestones are met.

Asked whether Quest would be a potential suitor, a person close to the restructuring said "no." This person said Quest "feels burned" by its investment in Correlogic — whose OvaCheck test for ovarian cancer has not yet been approved by the US Food and Drug Administration — and would likely be unwilling to acquire Ciphergen outright.

— Kirell Lakhman ([email protected])

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