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Nanosphere's Revenues Double as Firm Names New CEO; Stock Plummets

NEW YORK (GenomeWeb News) – Nanosphere reported after the close of the market Wednesday that its full-year revenues more than doubled and it trimmed its annual loss.

The firm also announced a management shakeup, which includes the naming of a new CEO and the replacement of several board members. Wall Street reacted negatively to the changes and a revenue forecast below expectations, sending the firm's shares tumbling 30 percent.

Nanosphere reported total revenues of $5.1 million for the three months ended Dec. 31, compared to $2.5 million for FY 2011. It fell short of the consensus Wall Street estimate of $5.2 million.

The firm's net loss for the year was $32.9 million, or $.67 per share, down from $35.4 million, or $.94 per share, for 2011. Analysts, on average, had expected a loss-per-share of $.69.

Its R&D spending declined 12 percent year over year to $17.6 million from $20 million, and its SG&A expenses increased 4 percent to $16.9 million from $16.2 million.

Nanosphere said that its revenues for Q4 were $1.6 million, falling short of the consensus Wall Street estimate of $1.7 million. It didn't provide its loss or loss-per-share for Q4.

The firm said that it placed 56 of its Verigene molecular diagnostics systems with new customers during the fourth quarter, up 87 percent over placements in Q4 2011 and bringing its cumulative customer base to 272.

However, the 56 placements fell short of Nanosphere's guidance of 60 for the quarter. CFO Roger Moody said on a conference call following the release of the financial results that the "shortfall was driven primarily by ongoing softness in European markets."

Moody also noted that the firm's previous first-quarter guidance was for 80 to 100 Verigene placements. But "slower than anticipated growth in international markets and the timing of projected regulatory approvals of our gram-negative and enteric assays makes 45 to 55 placements more likely in the first quarter," he said.

Nanosphere said that Q4 revenue growth was driven primarily by sales to US microbiology customers of systems and consumables used in testing for gram positive blood stream and respiratory infections.

During the quarter Nanosphere received US Food and Drug Administration 510(k) clearance for its Clostridium difficile molecular test.

It finished the year with $33.1 million in cash and cash equivalents.

The company expects to generate between $13 million and $15 million in product revenue in Fiscal Year 2013, and it expects to place between 200 and 250 of its Verigene systems. The consensus Wall Street estimate was for FY 2013 revenues of $20.1 million.

Nanosphere also announced today that Michael McGarrity, its VP of sales and marketing and chief commercial officer, has been named President and CEO, succeeding William Moffitt.

McGarrity said on the call that the change in management "reflects where we are as a company, that our clear focus and path forward is to be a customer-facing commercial-focused organization. I have spent virtually all of my time building that focus with our sales reps, our customers, our market in and around our competition, and I think that it's probably a normal progression of a company."

In addition, Nanosphere announced several changes to its board of directors. Sheli Rosenberg, Michael Ward, and McGarrity were named to the board of directors, while Moffitt, Mark Slezak, Roy Davis, and William White all resigned. Rosenberg will serve as chairman of the board.

Ward is a director of Lurie Investments, which together with its affiliates, is the largest holder of Nanosphere shares. Lurie has agreed to enter into a 12-month lock-up agreement with the company.

"Clearly, a track record littered with numerous operational disappointments suggests such changes were necessary and long overdue," Jefferies analyst Jon Wood said in a note this morning.

He dropped his 2013 revenue expectation to $13 million from $22 million, reflecting his assumption that neither Nanosphere's gram-negative BSI nor its enteric pathogens panels will contribute materially to US revenues, as both are likely to be late-2013 approvals.

In Thursday morning trade on the Nasdaq, shares of Nanosphere were down 30 percent to $1.86.