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Lion s Bioinformatics Unit Posts Second Quarterly Profit; Firm Mulls Change in Holding Company Model


Lion Bioscience this week posted the second consecutive profitable quarter for its bioinformatics business, which is still up for sale, and said that it is considering a change to the business model for its non-bioinformatics operations, which is currently structured as a holding company.

While the firm did not provide an updated timeline for the sale of its bioinformatics group, which has been on the block since last May, CFO Peter Willinger told BioInform that although the sales process has taken longer than initially expected, it "hasn't stopped."

Willinger said that Lion officials are "still talking to different companies to find the right structure," and that the firm is seeking the right "combination of different parameters that have to fit, so that this sale is also a good deal for Lion."

One challenge, he said "is that we are not the only party in the process, and we also have to accept the speed of these other parties we are talking to."

Willinger did not discuss the parties involved in these discussions, but Lion recently disclosed that six companies had offered to purchase its bioinformatics business, with the highest non-binding bid exceeding €10 million ($12 million) [BioInform 01-06-06].

"We are not the only party in the process, and we also have to accept the speed of these other parties we are talking to."

According to a transcript of Willinger's speech at the company's annual meeting on Nov. 29, 2005, a number of factors beyond the purchase price are influencing the ongoing discussions, including the payment schedule, whether the payment is in the form of cash, stock, or a mixture of the two, and whether the purchase price is tied to specific goals or milestones.

In a statement this week announcing the results for its third fiscal quarter, Lion said that in addition to the sale of the bioinformatics business, company officials are now engaged in the "parallel" process of evaluating a "new business model" for the company's continuing operations.

Currently, Lion's business is split into two parts: discontinued operations, which include the UK-based bioinformatics group as well as some cheminformatics software products and other minor activities; and continuing operations, which comprise a core staff of around five people based in the company's Heidelberg, Germany, headquarters.

The continuing operations were originally intended to serve as a holding company that would manage Lion's cash holdings, intellectual property estate, and other assets, as well as invest in new life science companies.

Now, Willinger said, Lion is reconsidering that structure. While he declined to provide any specific options that the company is evaluating, he said, "We're making good progress here and we have very interesting opportunities out there. We've had good talks, so we are now evaluating these different ideas, and I'm quite optimistic that within the next three months we could come with a very interesting story out to the market."

For the third quarter of its 2005/2006 fiscal year, which ended Dec. 31, 2005, Lion reported €1.3 million ($1.6 million) in total revenues, which came entirely from the bioinformatics group that it has classified as discontinued operations. This represents a drop of 40 percent from revenues of €2.2 million in the year-ago period, which were also generated by the bioinformatics group.

However, the group posted a slight profit of €13,000 for the quarter compared to a net loss of €2.4 million in the year-ago period.

Lion's total net loss — which includes the discontinued operations as well as continuing operations — fell to €282,000 for the quarter from €3.2 million in the prior-year period. Continuing operations reported a loss of €295,000, compared to a loss of €776,000 in the same period of the last fiscal year.

Lion held €7.8 million in cash and cash equivalents as of Dec. 31, plus €14.8 million in marketable securities.

Lion reiterated its goal to reach break-even in its 2005/2006 fiscal year, which ends March 31, on a "net result" basis that includes the bioinformatics business. If the company sells the bioinformatics unit before then, it could post a profit for the year.

The continuing operations are not expected to reach break-even, however, due to "the delay of some projects, which were expected to result in revenues in FY 2005/06," the company said in a statement.

Willinger said that these delays were related to the licensing of its Caco-2 patents and the sale of its cheminformatics IP.

— Bernadette Toner ([email protected])

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