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CombiMatrix, Restructuring and Seeking New CEO, Refocuses on Diagnostics

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By Justin Petrone

CombiMatrix will restructure its operations by increasing its focus on its diagnostics services business and reducing its cash burn by roughly half, the firm said this week.

As part of the restructuring, the Mukilteo, Wash.-based array firm said that it will replace President and CEO Amit Kumar and hire a more "commercially oriented" chief.

CombiMatrix said that Kumar will step down once his successor is hired.

While the 11-year-old company did not provide details of the planned restructuring, it noted that management and operations at its CombiMatrix Molecular Diagnostics subsidiary in Irvine, Calif., would not be affected by the cuts. The firm pledged to discuss the restructuring in detail when it reports its first-quarter results on May 11, or sooner.

Since it founded CMD in 2005, CombiMatrix has long seen its diagnostics business as its strongest suit, and has therefore shifted resources to the unit from its research array business to help CMD launch new tests and expand its sales force (BAN 3/10/2010).

CombiMatrix currently offers a number of tests through CMD, 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 post-prostatectomy.

The firm is also planning to launch later this year its Comprehensive Cancer Array, which is designed to measure microRNA expression patterns to detect the presence of cancer and distinguish between cancers.

CombiMatrix said that its goals for the diagnostics business include increasing adoption of its existing tests, expanding the test menu, increasing the number of customers and partners, and improving reimbursement.

To achieve that, though, the firm said it believes it must reduce its operating cash burn by between 40 percent and 60 percent compared to its 2009 cash burn of $10.6 million, after taking into account one-time costs. It noted that it will report a cash balance of $13.5 million as of the end of the first quarter.

"In light of the tremendous opportunities we see in the diagnostics arena, management and the board have decided to develop and implement a strategic plan which we believe will enable us to make the most effective use of our capital and provide the most probable path to cash flow positive operations," Kumar said in a statement.

CombiMatrix said that Kumar will serve in an advisory role to the firm after his successor is named, which it hopes will happen by the end of the second quarter.

Tom Akin, chairman of CombiMatrix's board of directors, said in a statement that it is the "right time" for a leadership transition at the firm as Kumar led the company through its "development and technology-focused period."
Now that CombiMatrix is "transitioning to more commercial activities," the company believes it will "benefit from an experienced commercially oriented leader that is focused on diagnostic testing services and building the laboratory business," he said.

CombiMatrix did not say where in the company costs will be trimmed, but the move is likely to hit its operations in Mukilteo, where its research-oriented applications are developed. In addition to its diagnostics business, CombiMatrix sells a CustomArray Synthesizer and catalog and custom microarrays, including a system for detecting and monitoring influenza. Late last year, CombiMatrix also launched its ElectraSense portable microarray reader (BAN 12/22/2009).

While research applications historically provided CombiMatrix with the majority of its income, particularly large contracts with the US Department of Defense related to biothreat detection programs, the firm's diagnostics service segment has been the only part of its business to experience consistent growth in recent quarters, albeit slowly.

For instance, in its fourth-quarter 2009 results, reported last month, CombiMatrix's total revenues fell to $1.1 million from $1.2 million for the fourth quarter of 2008. Decreasing government contracts and product sales contributed to the decline. Revenue from its services business, however, derived mostly from sales of diagnostics, increased to $588,000 from $549,000 (BAN 3/16/2010) during the period.

For full-year 2009, CombiMatrix reported revenues of $4.9 million, down 22 percent from $6.3 million in 2008. Again, only CombiMatrix's services revenues rose, to $2.4 million from $1.7 million year over year, while government contract revenue fell more than half to $1.2 million from $2.7 million. Product revenue fell to $1 million from $1.6 million for the year.

Kumar said during the company's full-year 2009earnings call that while there was growth in the diagnostics business, CombiMatrix is "not satisfied with the pace."

He said that some of the key hurdles to faster growth include a "difficult reimbursement environment, limited resources for clinical testing and validation, and limited sales and marketing infrastructure," obstacles that the company now appears bent on overcoming, given the announced restructuring.

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