This article has been updated to inlcude company comment and details throughout.
NEW YORK, Nov. 7 - With a competitive SNP-instrument market and dwindling cash reserves spooking investors, Orchid today formally announced its decision to sell off most of its Life Sciences business.
Rounding the last corner of a downstream strategy CEO Dale Pfost said the company initiated three years ago, Orchid will instead turn its attention to putting its gene-profiling chops to work.
"We are seeking a partner to acquire the instrumentation portion [of the Life Sciences business], which includes the consumables," Pfost told GenomeWeb following his company's conference call this morning. However, the firm will continue to work with the services portion of Life Sciences because it "really is an appropriate bridge" for the rest of its core gene-profiling business.
"We make the most profit where we're serving the needs of the clinical-quality or legal-grade gene profiling," he said, referring to Orchid's strides in pharmacogenomics, "counter-terrorism," and paternity and forensics testing. "That's certainly where a lot of the applications are going."
Though the company today posted a 130-percent increase in third-quarter revenue growth and a narrowed net loss, it continues to be plagued by shrinking coffers. Its current cash-burn rate, which newbie CFO Andrew Savadelis said will be in the "single digits" during the next nine months, threatens to bleed the company dry by year's end.
Wall Street has taken notice: If Orchid's share price closes below $1 today it will mark 51 consecutive trading days that the stock price has hovered below the Nasdaq's minimum allowable price. The company has likely received a letter from the exchange warning of impending delisting. If so, the firm has 69 more days to get its share price above $1 or risk delisting. Shares in the company were down $.06 to $.71 in mid-afternoon trade.
Still, there were some financial bright spots. Revenue in the period ended Sept. 30 came in at just under $17 million and reflected growth across the board, according to Orchid: Product receipts increased by $1.2 million, service revenue swelled by $8.3 million, and even cash from collaborations and licenses increased by $61,000.
As it continues to cut costs, Orchid has trimmed R&D spending in the quarter to $7.2 million from $9.6 million. The reduction mirrored total expenses, which fell to $39 million in the third quarter 2002 from $49.7 million one year ago, Orchid said.
As a result, third-quarter net loss shrank to $22.3 million, or $.40 per share, from $41.9 million, or $1.06, last year.
New SNPs on the Block
"We're really looking to exit" the SNP-instrumentation business, Pfost told GenomeWeb. Though he declined to say which companies he's been talking to, Pfost said instruments from the Life Sciences business would be most at home in an "instrumentation company that has a broad portfolio of different types of instruments." Pfost said he is confident about finding a buyer over the next 55 days.
Orchid also said it has begun "exploring options" for "redeploying" other assets to in order to raise cash. Though Pfost declined to elaborate, he hinted that parts of the company that perform "clinical-quality or legal-grade genoprofiling"--think Cellmark, GeneScreen, GeneShield--are safe.
"When we look at the spectrum of divestitures that we could consider, there is a great number that we couldn't fathom at this stage because they're so strategically core to us," he said. CFO Savadelis added: "We want to turn up every stone ... and reduce those expenditures."
In real terms, the divestiture and other asset selling represent two of three steps Orchid is taking to hold on to its remaining cash. The company said it had around $8.5 million in cash and cash equivalents, another $609,000 in short-term investments, and just over $1 million in restricted cash as of Sept. 30.
The third step, said Savadelis, is loans. "We are very far along" in closing a working-capital line with a commercial bank, Savadelis said. "That looks very promising." He said if Orchid decides to pursue this deal it would likely close a deal before the end of the year.
"Being in the tools business you are serving pharma's needs," Pfost said in an interview last month following a presentation at an investor conference, echoing a familiar refrain among genomics tool vendors. "We know that the application of these tools" is more profitable than "packaging them up and selling them. We get paid more by using these tools ourselves."