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CombiMatrix, Illumina Report Q3 Revenue Growth, But Investors Remain Unimpressed


CombiMatrix reported gains in revenue and a decrease in its net loss for the third quarter, as the firm continued its evolution from a microarray products firm to a diversified biotech and nanotechnology concern.

The life sciences unit of Acacia Research reported total revenue of $753,000 for the quarter, a significant gain on revenue of $181,000 in the third quarter of 2003. Its revenues were flat from the second quarter and fell far short of analysts’ expectations of $1.1 million.

The firm’s microarray sales for the quarter were $130,000, up from $49,000 in the second quarter. “This is a modest increase in sales over the previous quarter, but we are positioning ourselves for rapid growth in upcoming quarters,” Amit Kumar, president and CEO of CombiMatrix, said during a conference call following the release of the firm’s financial results.

“We are a unique company in our strategy,” he said. “We establish lots and lots of relationships. This allows us to work in a number of different blockbuster areas without burning a huge amount of cash.”

“The sales will come eventually, but let’s not forget all aspects of our business,” Kumar added. “In total, we brought in nearly $2.25 million in cash flow this quarter even though sales were modest.”

CombiMatrix received $685,000 in government contract revenue during the quarter and announced that it would receive an additional $2.3 million from the US Department of Defense to continue development of its biowarfare detection products program. The additional funding from the DoD brought the total granted to CombiMatrix, both in past and future funding, to nearly $10 million.

Related to this program, CombiMatrix said last week that it would collaborate with Science Applications International on development of microarray technology for identification of biothreat organisms.

During the past quarter, the Mukilteo, Wash.-based firm also expanded its drug-discovery operations with the planned acquisition of a 33 percent stake in Leuchemix. The company said that the action was part of a long-term investment strategy, and that it has no intention of de-emphasizing other parts of its business. (see BAN 10/6/2004)

CombiMatrix has an ongoing collaboration with Spanish non-profit research institute IrsiCaixa to develop two siRNAs as anti-HIV agents. Based on early data from the collaboration, CombiMatrix plans to advance the siRNAs into animal testing. It also is working with IrsiCaixa on research and development of siRNAs targeting hepatitis C virus. (see BioArray News’ sister publication RNAi News 7/23/04 for more on the collaboration)

CombiMatrix holds exclusive, worldwide rights to the siRNAs.

Kumar called CombiMatrix’s involvement in drug development efforts “perhaps the most exciting focus” of the firm.

“We anticipate having our first drug candidate in humans in Phase I trials in 2005 with very little cost expended. As we move forward with progress at Leuchemix, we’ll utilize our microarrays when appropriate in development as well as in clinical trials.”

The firm also announced during the quarter a collaboration with Intel that will utilize CombiMatrix’s core technology. But the partners are not disclosing any details of the pact. Another one of its partners in the nanotechnology segment of its business, Nanomaterials Discovery, received a $2.5 million grant from the DoD to develop fuel cell technology utilizing CombiMatrix’s NanoArrays.

Although the firm made significant strides in diversifying its business during the quarter, its microarray business remains a key focus. The firm introduced custom microarrays for drug metabolism, toxicology, and cancer, and rolled out its new 12K CustomArray.

When asked during the conference call about the firm’s relatively low sales of microarrays, Kumar responded, “It’s important to note that we’ve only had our product on the market a few months, and the 12K, which is our flagship, has only been on the market a few weeks.”

He added, “We feel confident with our progress and our ability to execute our commercialization plan for CustomArray, our funding level in our defense programs, and our nanotechnology relationships.”

Despite the firm’s optimistic outlook, its shares have languished, falling from a high of $9.30 at the end of January to its Monday close of $2.86 on the Nasdaq.

One reason for investor concern is the continued delay by CombiMatrix partner Roche to launch their jointly developed MatrixArray for fabricating custom microarrays. Kumar maintained that all indications suggest that Roche is still interested in launching the product.

“We have completed everything for Roche that we are obligated to do and they’ve made their appropriate payments to us,” Kumar said. “There are a lot of rumors running around on chat boards and rumors that have come out from various junior-level Roche personnel about this product and their plans, but I want to note, there’s no credibility to these rumors.”

Since the deal with Roche is non-exclusive, Kumar noted that CombiMatrix is negotiating with other parties. “As we go forward we anticipate being able to establish a number of other distribution relationships, which we think will help us get the product out to market much more quickly.”

Strong Revenue Gains for Illumina

Illumina last week reported a 64 percent increase in revenue year over year for its third quarter. The San Diego-based firm reported total revenue of $13.5 million, falling just shy of analysts’ consensus expectations of $13.6 million.

The firm’s product revenue for the quarter was $12.1 million, a sharp gain on product revenue of $6.5 in the comparable period a year ago. Its product revenue was driven by the sale of 15 BeadStations. Thus far this year, Illumina has sold 29 of its flagship BeadStations, easily surpassing its 2004 milestone of 20 system sales.

Despite the relatively strong quarter, investors in Illumina appeared unimpressed. The firm’s shares, which climbed 7.8 percent in the week leading up to the release of its Q3 results, have since receded 7.5 percent to close at $6.53 on Monday on the Nasdaq.

Illumina’s net loss fell in the quarter to $2 million, or $.05 per share, from $5.5 million, or $.17 per share, beating analysts’ estimates by 2 cents per share. The firm recognized a one-time gain during the quarter of $1.5 million, or $.04 per share, related to the settlement of litigation with Applera.

However, microarray industry leader Affymetrix filed suit against Illumina in August for alleged infringement of six patents. Illumina CEO Jay Flatley said recently at the UBS Global Life Sciences Conference in New York that he expects the litigation will take a couple of years to resolve and that he believes it was initiated to “slow down” Illumina’s efforts in the gene expression and genotyping spaces. (see BAN 10/6/2004)

The industry is anxiously awaiting the launch of Illumina’s Sentrix BeadChips for large-scale gene expression experiments. The official launch is expected soon, and the firm will offer a combined genotyping and gene expression BeadStation platform for $260,000 — only $10,000 more than the cost of its genotyping instrument.

The firm has been a leader in the genotyping space, but it is facing a stiff challenge from new entrant Affymetrix, which launched 10K and 100K mapping arrays earlier this year and plans the launch of a 500K genotyping array either late this year or early next year. Illumina is planning to roll out its own 100K genotyping array early next year.

Analysts with Pacific Growth Equities said they expect Illumina to sell another 15 BeadStations in the fourth quarter. The analysts are projecting product revenue of $14 million for the fourth quarter, up from their previous estimate of $13.4 million.

— EW