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As Shares Fall 64 Percent to Near Low, Transgenomic Ponders Next Step

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Transgenomic has had a tough time adjusting.

The company said it would save between $10 million and $12 million per year by refocusing its business and restructuring its operations, which was completed last month, but investors have continued to punish Transgenomic since it announced the plan in mid-November.

Transgenomic hoped that the restructuring, which included the sale of two nucleic acids-related R&D facilities and 60 lay-offs, would help it turn around its declining fortunes by shifting its focus onto "services and maintainence," Mike Summers, former Transgenomic CFO, told Pharmacogenomics Reporter in December. The company consists of the Wave platform and its derivatives, a consumables division (which sells oligonucleotides), and a services division.

But instead, the move has left investors uninspired, and shares in the Omaha, Neb.-based company have declined 65 percent in the four months since Transgenomic announced its reorganization.

As of the early afternoon of March 30, the company's stock traded at $.54 per share, one penny above its 52-week low.

However, earlier this month the firm has had good news since it announced the reorganization. Transgenomic said it will distribute EGene's products in France, Germany, UK, Ireland, Spain, Portugal, India, and Pakistan for an undisclosed amount. Also, the company launched a microbial analysis system based on its flagship Wave platform in late February.

But despite those bright spots, the firm now risks receiving a delisting notice from the Nasdaq exchange as its shares have closed below $1 for 29 consecutive trading days.

Indeed, Transgenomic's stock has been trading below the $1 mark since Feb. 15. Should the company's share price stay below that mark when the market closes on March 30, it will mark 30 consecutive closes below $1. At this point, the Nadsdaq exchange will likely issue a warning letter threatening the firm with delisting. The warning gives the company 90 days to bring its closing price above $1, and the price will have to stay above that mark for 10 days to be taken out of the penalty box.

What will Transgenomic do to reassure investors? According to Mitchell Murphy, Transgenomic interim CFO, it will continue to concentrate on the new course it has set for itself. Murphy also hinted that more information about the company's plans might be found in its upcoming fourth-quarter earnings. "And that's probably the main item that we're looking at to help with the situation," said Murphy. "We'd like to think that the news from last week — where our lender saw fit to convert some of our debt into equity — was a sign of reassurance in and of itself."

The waiver was extended by the lender, Laurus Master Fund, until March 31, 2006, Murphy said. The company said in a March 18 statement that Laurus had decided to convert about $1.8 million of the outstanding debt on the facility, which Murphy told GenomeWeb News, Pharmacogenomics Reporter's sister publication, amounted to approximately 10 percent of the company's market capitalization. Murphy said Laurus probably sold those shares.

Although Murphy would not spell out the company's plan for the coming year, the full available $7.5 million revolving facility could be called in to play the role of a trapeze net or a bridge over choppy water, should Transgenomic need it. The company is "working with our lender in insuring that we have enough borrowing capacity as necessary so that we can proceed and execute our business plan in 2005," said Murphy. Transgenomic held cash and cash equivalents of $1.1 million as of Sept. 30.

It remains unclear whether Transgenomic will use the Laurus money, and Murphy declined to clarify the matter. Asked whether the company was planning to use the extra money, Murphy said, "Hopefully not — we have historically had operating losses, and had used the [loan] facility to fund some of those losses," he said. The company said in a March 18 statement that the funding was "aimed at firming up its financing for ongoing operations."

— CW

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