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Nanogen's Q4 Revenues Rise; Expects Accountants to Raise 'Going-Concern' Doubts

NEW YORK (GenomeWeb News) – Nanogen said after the close of the market on Thursday that amid a restructuring, which included shutting down its microarray business, the firm’s fourth-quarter revenues increased 13 percent.
However, in a note accompanying the results, Nanogen said that it expects its independent accountants to issue an adverse opinion with respect to its internal controls and say that “there is substantial doubt about the company’s ability to continue as a going concern.”
The San Diego-based firm released preliminary fourth-quarter and full-year 2007 results because its annual audit has not yet been completed. It expects to file its 10-K with the US Securities and Exchange Commission by the end of March.
Nanogen reported revenues of $9.8 million for the three months ended Dec. 31, compared with revenues of $8.7 million in the fourth quarter of 2006.
The firm cut its net loss to $6.1 million, or $.08 per share, from $11.2 million, or $.17 per share, a year earlier.
Nanogen’s R&D expenses for the quarter were $4.5 million, down 31.8 percent from $6.6 million in Q4 2006, while its SG&A costs rose 2.3 percent to $8.9 million from $8.7 million.
"During the fourth quarter of 2007, we implemented our restructuring plan, which we expect will result in substantially improved financial results," Nanogen Chairman and CEO Howard Birndorf said in a statement. "The actions taken in the fourth quarter, including the decision to exit our microarray business, will translate into significant cost savings in 2008."
Nanogen said in September that it would sell its microarray business in an effort to focus on building its RT-PCR and point-of-care testing businesses and more rapidly achieve profitability. 
“We undertook the shutdown of this business in November and are well along in completing the closure,” Birndorf said during a conference call last night. “In conjunction with closing the array business, we’ve trimmed our workforce by approximately 25 percent and determined that we would save approximately $15 million in cash annually.”

Despite the closure of the array business, Birndorf said the firm did not expect revenues to decline. “This has proven true,” he said.

“In addition to closing the array business, we have looked at, and will continue to look at, other strategic opportunities and alternatives for our ongoing business with an objective to provide the best return to our shareholders,” Birndorf added. 

He said those alternatives include trying to build Nanogen’s existing business through alternative financing options, “as well as the sale or merger of the company or sales of certain assets.” Credit Suisse, which advised the firm on options for the microarray business, is helping Nanogen decide on its options, Birndorf said.

For full-year 2007, Nanogen reported revenues of $38.2 million, up from $26.9 million in 2006. Its net loss shrank to $39.9 million, or $.55 per share, from $49.1 million, or $.78 per share.
The firm’s R&D spending was flat at $25.7 million, and its SG&A expenses rose to $38.2 million from $33.4 million.
Included in Nanogen’s full-year 2007 costs and expenses is roughly $9.9 million in charges associated with the closure of the microarray business. That was offset partially by a $5.8 million non-cash gain on the “deconsolidation of a variable interest entity.”
Nanogen finished the year with $5.8 million in cash and cash equivalents.
In early Friday trade on the Nasdaq, Nanogen's shares were up 5.8 percent at $.55.
Birndorf noted during the call that although Nanogen recently received approval from its shareholders for a reverse split of the firm’s stock, it currently has no plans to undertake that split. However, he said the firm may be forced to do so in the future to meet Nasdaq listing requirements.
It also received shareholder approval last month to proceed with a debt financing announced in August 2007.

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