In a bid to rescue its budding pipeline of diagnostic array-based tests from a cash crunch, CombiMatrix will most likely pursue a variety of additional financing options and is prepared to cut staff and research outlays if things grow tighter through the first half of next year, according to the firm’s CEO.
During the firm’s third-quarter earnings call, CEO Amit Kumar told investors that the company has burned through $11.8 million since January and finished the quarter with $8.3 million in cash and short-term investments. He said this is likely enough to take the company through next year.
At the same time the company’s stock has lost 42 percent of its value since the start of the year, and has been trading below $1 since Oct. 10.
To keep CombiMatrix afloat as it rolls out diagnostics through its CombiMatrix Molecular Diagnostics subsidiary, the company “will be looking for additional financing either through [its] existing equity line or through other sources,” Kumar said.
He said financing options include accessing investors through traditional mechanisms such as pipe financing, register-direct financing, “as well as trying to establish investment through strategic investors and so forth.” Kumar did not elaborate, and could not be reached for comment this week.
CombiMatrix’s plans to broaden its lines of financing come at a critical juncture in the firm’s 7-year history. The company recently launched a test for genetic abnormalities and a second diagnostic for melanoma is scheduled to become available late next month.
CombiMatrix parent company Acacia Research addressed these issues in a statement last week, noting that “due to the recent decline in the market value of [Acacia Research]-CombiMatrix stock ... the CombiMatrix group will likely be required to seek other sources of financing including the issuance of securities in order to maintain its operations for the next twelve months.”
“However, such additional financing options may not be available at times and at terms acceptable to the CombiMatrix group, in which case it may be necessary to reduce its operating costs including research projects and personnel, which could jeopardize the future strategic initiatives and business plans of the CombiMatrix group,” Acacia stated.
The reality facing CombiMatrix was not lost on analysts or investors during last week’s conference call.
“As you would expect I am hugely concerned about the current stock price,” said investor Steve Ellenbecker. “The market seems to be [showing that] we’re in a mad race between a death spiral between running out of cash versus the ability to unfold this diagnostic pipeline,” he said.
“It looks like the market’s saying that we may not make it, and I hope they’re wrong, certainly as a stockholder,” he added.
Kumar said that he shared investors’ concerns over the company’s stock price, which was trading around $.80 on Tuesday. He said that CombiMatrix would create value for its stock by deploying its suite of diagnostic tests through its CMDX subsidiary. Tests for prostate, kidney, and breast cancer are also expected to become available next year.
And in a bit of good fortune, the US Food and Drug Administration this month said the company can sell its Constitutional Genetic Analysis Test as a homebrew to diagnostic labs without any further interaction with the agency (see BAN 10/24/2006).
“As long as you have cost you can always cut.”
According to Kumar, CombiMatrix is also planning to split from Acacia and trade with its own stock ticker in the first quarter of next year. The company has said that it believes that separating from Acacia may make it more attractive to investors.
But if additional funding does not materialize in time to support Combi’s diagnostics play, the firm could be forced to cut research and staff, with Kumar hinting that the firm’s sales and support force could be reduced in line with the firm’s distribution strategy.
“One of our plans has been to get our distributors up and running to sell our products … utilizing their investments,” Kumar said. “As such we have made some modest cuts in our organization and anticipate reviewing that on a periodic basis. There’s always room to do that.
“As long as you have cost you can always cut,” he added.