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CombiMatrix to Increase Investments in Its Dx Business; Aims for 5,000 New Patients in '09

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CombiMatrix will use the $8.3 million it recently raised in a private placement to expand its sales and marketing team and strengthen its negotiating clout with potential partners, the company said last week.

The Mukilteo, Wash.-based firm made the announcement as it looks to more than double the amount of patients it serves through its molecular diagnostics subsidiary this year.

CEO Amit Kumar told investors during the company's first-quarter earnings call that CombiMatrix plans to more than double the amount of patients it serves through its molecular diagnostics subsidiary this year, and that the firm's strengthened balance sheet 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," said Kumar. "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.

Based CombiMatrix's own projections, the cash infusion will enable it to remain in business through 2010.

CombiMatrix said Q1 revenues tumbled 23 percent year over year, mostly due to weak government contracts and product sales. However, diagnostics-services revenue increased 166 percent during the same period.

For the three-month period ended March 31, the company recorded $1.5 million in total revenue compared to total revenues of $2 million in the comparable year-ago period. Revenues from government contracts fell to $525,000 from $1.1 million, while receipts from products sales dropped to $257,000 from $575,000 year over year. Diagnostic services revenues rose to $696,000 from $283,000 the year before.

The firm's net loss for the quarter was $6.1 million, or $.97 per share, compared to a net loss of $3.4 million, or $.56 per share, for the first quarter of 2008. R&D spending was trimmed 16 percent to $1.1 million from $1.3 million, and its SG&A spending rose 33 percent to $2.8 million from $2.1 million year over year. CombiMatrix reported $5.9 million in cash, cash equivalents, and short-term investments as of the end of the quarter.

Kumar said that in 2008, the firm's diagnostic tests were run on 2,000 billable patients, and CombiMatrix's plan is to achieve approximately 5,000 billable patients this year. To do that CombiMatrix plans to hire between two and six new salespeople by year end. The company ended '08 with three salespeople, but has already hired three more. Kumar forecasts having "eight to 12" on staff by December.

"The expectation in the industry is that one-third to one-half of all private biotech companies will be bought out or go out of business during this period of very difficult financial challenges, because they will have trouble raising capital," Kumar said. "We are pleased that investors saw enough value in our business and opportunities to make this investment."

"Most biotech companies regularly raise cash for many years as their businesses are capital intensive," he added. CombiMatrix, which is 10 years old, "is unique because we are at a stage of development where we are generating revenue with many products."

CombiMatrix also expects by the end of 2010 to receive nearly $40 million following an insurance dispute. In March 2008, the US District Court for the District of Central California awarded CombiMatrix $32.1 million in a suit against National Union. CombiMatrix sued National Union after it denied coverage for legal expenses related to CombiMatrix's litigation with Nanogen, which the firms settled in 2002.

The court increased the award to $35.7 million in May 2008 after it agreed that National Union owed CombiMatrix an additional $3.6 million for attorneys' fees and litigation costs (see BAN 3/10/2009).

CombiMatrix Molecular Diagnostics, a wholly owned subsidiary of CombiMatrix, currently offers a number of tests, including the BAC and Oligo HDScan tests for identifying congenital chromosomal abnormalities; the Prenatal Scan test for identifying genetic disorders in utero; the ATScan test for identifying copy number variants associated with autism spectrum disorder; the HemeScan test for chronic lymphocytic leukemia; the HERScan test for HER2 analysis in breast cancer patients; and the Prostate Cancer Microarray test to stratify cancer patients according to risk of recurrence and metastasis in patients post-prostatectomy.

All diagnostics are sold as laboratory-developed tests through CMDX's Clinical Laboratory Improvement Acts-compliant lab in Irvine, Calif.

Kumar said that CombiMatrix is now developing a Comprehensive Cancer Array test, which measures miRNA expression patterns to detect the presence of cancer and distinguish between cancers. According to Kumar, CombiMatrix hopes to complete the initial R&D phase of the CCA by the end of the third quarter, and to complete assay development, protocol development, and quality control metrics by the end of 2009.

The company aims to complete clinical trials involving the CCA by mid-2010, and plans to launch the test by the beginning of Q3 2010. Kumar said that CombiMatrix has not decided what content will be available on the array, but said the firm is focused on prostate, lung, colon, breast, and ovarian cancer, as they are the "most prevalent adenocarcinomas."

Kumar told BioArray News sister publication Pharmacogenomics Reporter in March that the CCA is a "game changer for the whole industry," and that CombiMatrix envisions marketing the CCA to the 50 million people in the US who are 40 years or older as part of routine physical examinations. The company could charge between $250 and $300 for the ability to simultaneously screen for cancers at multiple organ sites, he said.

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