With enough cash to remain in business through 2010, CombiMatrix has hired an investment bank to help it outline its future strategy.
While CombiMatrix would not disclose the terms within which the bank, Robert W. Baird, will serve as its "financial and strategic advisor," such moves typically are overtures to mergers, acquisitions, or asset divestitures.
"CombiMatrix is at a major inflection point in its business plan, and we look forward to the advice provided by Baird in developing and evaluating certain corporate-level opportunities," CombiMatrix CEO Amit Kumar said in a statement Sept. 16.
The statement concluded: "CombiMatrix does not currently plan to provide updates on such corporate opportunities until the process is completed or terminated, unless required by applicable rules or regulations."
Kumar originally disclosed the company's plan to hire a financial advisor during its second-quarter earnings call in August (see BAN 8/18/2009).
At the time, he said that that CombiMatrix was considering deals that could "include the sale of the company or portions of the company."
As of June 30 the company had around $11 million in cash, equivalents, and available-for-sale investments. This, together with a $1.5 million deal it won last week from the US Air Force Research Laboratory, gives the firm around $12.5 million in ready cash.
The amount also includes $7.6 million CombiMatrix netted from an $8.3 million private stock placement in May that gave it enough cash on hand to survive through 2010. At the time, Kumar said the firm planned to use that cash to expand its sales and marketing team and strengthen its negotiating clout with potential partners (see BAN 5/12/2009).
During the company's first-quarter earnings call, Kumar said the yield from the private placement has "many operational and strategic implications."
"When a biotech company has a stronger balance sheet, it is more able to recruit personnel, including sales people," he said. "Customers and partners feel more comfortable using the company's products ... and we are engaged in several partnership discussions, including some that may be transformative for the company." Kumar did not elaborate (see BAN 8/18/2009).
Now, with Baird on board, CombiMatrix faces a double-edged sword: The current state of financial markets could accelerate a merger, acquisition, or asset divestiture. But experience from other recent or pending M&A transactions indicates that those markets could lower its selling price.
'Step Out There'
"There are two ways to get yourself out of this existing market situation and one of them is to make very strategic smart acquisitions at good valuation that, as the market starts to turn, give you the ability to step out there," said Harry Glorikian, managing partner at life-science consulting firm Scientia Advisors.
Glorikian spoke with BioArray News sister publication ProteoMonitor this week about the general life-science M&A market. "There is the sense of, 'Oh my God, valuations may never be this low again; let me take the opportunity to fill out my portfolio, add something completely new, or diversify myself,'" he added.
Marijn Dekkers, the outgoing president and CEO of Thermo Fisher, agreed. Speaking during the firm's second-quarter earnings release in July, he said that as markets continue to stabilize, companies, particularly those looking to sell, would have incentives to pursue deals.
"What's happening now is that people are beginning to realize, 'OK, we had a significant retraction in values of the company,' and everybody was going to wait that out to some extent," Dekkers said. "I think companies are now probably becoming more open to [deals and] there will be more opportunities in the next six to 12 months than there were in the last six months."
According to Glorikian, firms that were on the fence financially before the economic downturn last year may have also been forced to review their businesses to determine which part of their portfolio they need "and which parts do I not need, and do I want to take cash to use for something else?"
Another life-sci official suggested firms considering putting themselves on the block should be careful not to overestimate their value in the current market.
"What is a valuation of these companies when the 52-week high is in … everyone's memory?" Agilent CFO Adrian Dillon said during the company's fiscal second-quarter earnings release. "As the 52-week high fades [from] memory, I think that you could see more acquisition activity in this industry."
Shares in CombiMatrix, which have lost around 7 percent of their value since the beginning of the year, were trading at around half their 52-week high at $6.83 Tuesday afternoon as BioArray News went to press.
The company's current market capitalization is currently around $51 million.
CombiMatrix is also awaiting a decision in an ongoing dispute with National Union Fire Insurance Company that could provide it with a $36 million settlement some time in the next year and a half.
Last year, a US District Court in California entered a final judgment in favor of CombiMatrix under which National Union was to pay the company $35.7 million, but the insurance company appealed the decision.
The parties are currently waiting for the US 9th Circuit Court of Appeals to set a date for oral hearings in the case (see BAN 6/23/2009).