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New CFO To Seek Funding For Cash-Strapped Hyseq, after Q1 Revenues Rise

NEW YORK, April 27 – Hyseq has less than $15 million in the bank—drawn from a $20 million loan provided by Chairman George Rathman in February, but Peter Garcia, the new chief financial officer, is optimistic about the company’s future.

“The company to me seems undervalued,” said Garcia. “There is potential for significant growth over the next few years.”

Garcia, who worked under Rathman at Amgen from 1990 to 1996, is a true believer in Rathman’s ability to turn the company around.

“When George says this company has more potential than Amgen or Icos ever did, the financing will be there, and we will remain optismistic,” Garcia said. “I am positive about the caliber of people we have here and the technology the company has.”

Hyseq's first-quarter earnings statement, which it released Thursday, provided some support for Garcia’s optimism. The company garnered $5.7 million in revenues for the quarter, up 216 percent from its $1.8 million in revenues for the same period of last year. 

This revenue increase, however, was offset by an increase in Hyseq’s expenses to $12 million, from $8.4 million for the first quarter of 2000. This increase mostly stems from greater R&D expenses, which totaled $9 million, up from $5.8 million for the year-ago quarter, as the company makes a major shift into biopharmaceutical development. The company’s sales, general, and administrative expenses rose to $3 million, from $2.6 million for the comparable period of 2000.

The company has recently said it is developing two genomics-based drugs, one in the anti-inflammatory category, and one cardiovascular drug, and is de-emphasizing technology-based programs such as its biochips as it seeks to file at least one Investigational New Drug application by the end of the calendar year

Given that Hyseq only had $14.8 million in cash as of March 31—and spent $12 million last quarter, this plan would seem unrealistically ambitious unless the company taps into new sources of financing.

Garcia, who spoke to GenomeWeb during his first day on the job Tuesday, said he is planning to address this financial situation immediately. “Job one for me is to get access to some capital for the company so can we meet those [drug development] milestones we have identified,” he said. “We need a significant amount of money—in the 50-plus [million] range.”

Garcia is planning in the next 30 days to devise a clear strategy for raising equity. He said investment banks have been calling, but despite the market conditions, Garcia has not entirely ruled out a follow-on offering. The company also plans to raise money through partnerships with biotechnology and pharmaceutical companies in virtually any area that involves Hyseq's intellectual property of 6,000 genes or its drug candidates.

The company has, however, for the moment ruled out one source of funding: acquisition by a larger firm. "The strategy is really to develop these [pharmaceutical] products in-house," said Garcia. "I wasn't brought on board to sell the company."

Meanwhile, a Hyseq spokeswoman said the company is still negotiating with Applied Biosystems on the most commercially viable way to develop the company's biochip, the HyChip, which it signed a collaboration with ABI to commercialize in 1997.

For the quarter, the company’s net losses increased slightly, to $6.7 million, or 49 cents per share, compared to $6.3 million or 48 cents a share for the first quarter of 2000. No information was available on Wall Street's expected earnings.

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