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Clinical Data's Cash Burn Rate Swells Due to R&D and M&A Cost; PGx Division Grows

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Shortly after Clinical Data reported this week that its overall receipts declined 4 percent in its fiscal third quarter, net loss widened five-fold during the same period, and a phase III study hit the firm's balance sheet, the company told the US Securities and Exchange Commission that it currently has enough cash to carry through the end of next month.

On the up side, Clinical Data's PGxHealth division reported a 105 percent increase in revenues for the three months ended Dec. 31.

In an statement announcing its fiscal third quarter earnings, Clinical Data said that it finished the quarter with cash and cash equivalents of $25.7 million.

In a 10-Q SEC filing, the company said that its current cash and cash availability is sufficient to fund operations only through March 2009. In the filing, the company said it will need between $25 million and $30 million to file the new drug application for vilazodone.

Vilazodone, a selective serotonin-reuptake inhibitor and a 5-HT1A partial agonist, has a companion diagnostic associated with it. Clinical Data this week reiterated that it remains on track to submit a New Drug Application with the US Food and Drug Administration by year end.

"The cash burn was high as expected given the final stages of our Phase III trial and long-term safety study for our lead drug candidate, Vilazodone," Theresa McNeely, Clinical Data's VP of corporate communications, told Pharmacogenomics Reporter this week.

Clinical Data has also incurred expenses related to its acquisition in August of Adenosine Therapeutics and its merger agreement with Avalon Pharmaceuticals in October. The acquisition and merger falls in line with Clinical Data's overarching strategy to become a standalone personalized medicine company [see PGx Reporter 12-31-2008].

"As a result of the acquisition of Adenosine Therapeutics, components of the merger structure with Avalon and the positive acceleration of certain components of the vilazodone clinical trials, the company believes that its cash and cash availability will only be sufficient to fund its operations through March 2009," Clinical Data said in the filing. "This is based on a steady state view of the company's financials and does not assume any cash inflows from partnerships, disposition of non-core assets or other dilutive or non-dilutive financings."

Among the options Clinical Data said that it is considering to bring in additional funds are partnering opportunities with pharmaceutical or biotech companies for vilazodone, licensing certain development programs or patents from recently acquired Adenosine Therapeutics, the sale of non-core assets, and the sale of equity or debt securities.

In September 2008, the firm raised $25 million through the private placement of 1,514,922 shares of newly issued common stock to affiliates of Randal Kirk, chairman of the Newton, Mass.-based firm's board of directors.

Clinical Data said in the filing that if it is unable to obtain additional financing or funds through partnerships or divestitures, it will be required to implement "aggressive cost-reduction strategies."

"We are obviously closely managing expenses, aware of our cash runway, and unlike many other biotechs, particularly in this market, have a very committed shareholder base (majority holders) that have always stepped up to the plate when needed and have expressed interest to participate again if needed," McNeely said in an e-mail.

In the third quarter, Clinical Data posted a net loss of $23.7 million, or $1.04 per share, compared to a net loss of $4.3 million, or $.21 per share, for the third quarter of 2007.

Clinical Data's R&D costs roughly doubled to $15.5 million from $7.8 million year over year, while SG&A spending increased 1 percent to $10 million from $9.9 million.

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Despite the company's cash-strapped position, revenues of its pharmacogenomics division, PGxHealth, continue to grow.

Revenue for Clinical Data's PGxHealth genetic-testing services division rose to $2.6 million from around $1.3 million for the third quarter of 2007, driven by additional coverage policies for its Familion tests from national payor Aetna. Clinical Data also provides genetic testing services through its PGxHealth division under Medicare and under Medicaid in 38 states and in Washington, DC.

"Our Familion genetic test for long QT syndrome is the cornerstone of our genetic-testing business, and therefore represents a large portion of our testing revenues at this point," McNeely said. "We have exclusivity for this offering and it remains a core revenue driver."

Last year, Clinical Data launched two new Familion tests, for hypertrophic cardiomyopathy and arrhythmogenic right ventricular cardiomyopathy. The company also markets under its Familion brand tests for Brugada syndrome and catecholaminergic polymorphic ventricular tachycardia.

Under its PGxPredict line of tests, Clinical Data has tests for the non-Hodgkin's lymphoma drug rituximab and warfarin sensitivity. The company is developing pharmacogenetic tests for Herceptin and Erbitux under its program to discover and validate response biomarkers in the Fc gamma receptor pathways. Clinical Data is also developing tests for central nervous system disorders, rheumatoid arthritis, and diabetes.

McNeely noted that with the recent launches of its ARVC, HCM, and CPTV tests, the company is "starting to see a ramp up in test demand for the newer tests" as well. Clinical Data does not break out sales figures for individual tests.

In 2009, Clinical Data will continue focusing on CNS and cardiovascular disorders and oncology.

Total third-quarter revenue for the Newton, Mass.-based firm slid to $10.1 million from $10.5 million for the year-ago period. Excluding $1.8 million recognized in the third quarter of 2007 from certain Cogenics Icoria grant-funded research projects, the company reported that total revenues grew 16 percent year over year.

According to McNeely, the specific grants were advanced technology programs related to computational biology.

Excluding the impact of the Cogenics Icoria grants revenue from 2007, Cogenics' revenue was essentially flat year over year at $7.3 million, said Clinical Data.

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