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Ciphergen Lays Off One-Third of Staff in Reorganization; Management to Meet This Week to Discuss Future

NEW YORK, Aug. 2 (GenomeWeb News) - 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 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 these people. 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, 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 acquirers.

 

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 restructuring, which occurred mostly on 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.

 

Anticipating this most-recent revenue shortfall, which Ciphergen blamed on "weak USsales," the company in April began restructuring its sales program. "We are disappointed with our anticipated sales results for the first quarter," CEO Bill Rich said in a statement in May. He added that Ciphergen is "enthusiastic about the future growth of the company as we continue to address the emerging biomarker proteomics research, pharma and diagnostic markets."

 

But by then a small group of Ciphergen shareholders had already lost patience. Capped by a 13-percent year-over-year decline in third-quarter revenue, and a 31-percent drop in fourth-quarter receipts, and a precipitous slide in stock valuation, at least five investors in February said they would call for a no-confidence vote with the hope of sparking a board meeting to discuss the direction and management of the company.

 

GenomeWeb News recently learned that the shareholders will issue a letter this month to 30 institutional investors asking for their no-confidence vote. They will then present their response to Ciphergen's board.

 

Ciphergen's chief financial officer, Matthew Hogan, said at the time that the company had no comment on the pending no-confidence letter.

 

The shareholders called for the resignation of CEO Bill Rich, biosystems President Martin Verhoef, and diagnostics division President Gail Page.

 

"If you look at the share price, it's pretty dismal, and they don't look like they're recovering," said one shareholder on the condition of anonymity. "I think the stock could be a lot stronger, and they've got to execute a market strategy to get there. The market strategy just has not worked."

 

Some Strides

 

But in the ensuing five 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.

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