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CombiMatrix Seeks Financial Advisor to Evaluate Sale or Partnership Options

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By Justin Petrone

CombiMatrix will hire a financial advisor to help it partner with a larger firm that can better support and sell its menu of diagnostics, the firm's top official said last week.

CEO Amit Kumar said during the firm's second-quarter earnings call that CombiMatrix has reached an "inflection point" and is considering deals that could "include the sale of the company or portions of the company."

"With limited resources we have been able to conduct clinical trials and build a small sales force to sell our tests," Kumar said. "We have always felt that coupling our capabilities with a partner that has commercialization infrastructure would be a synergistic relationship," he said. "We are now seeking to hire a financial advisor who will help us identify, evaluate, and close a transaction in a more effective manner."

Mukilteo, Wash.-based CombiMatrix makes and sells through its Irvine, Calif.-based clinical diagnostics subsidiary a number of array-based tests for indications including constitutional abnormalities, prostate cancer, breast cancer, and chronic lymphocytic leukemia. The company also sells tools for custom array synthesis and makes arrays for the monitoring of infectious diseases.

During the call, Kumar discussed CombiMatrix's second-quarter revenues, which declined around 43 percent, and which the firm said was due to "non-recurring events."

CombiMatrix reported revenues of $1.2 million for the three-month period ended June 30, compared to revenues of $2.1 million for the second quarter of 2008. The revenues fell far short of analysts' consensus estimate of $1.9 million for the quarter.

Revenue from government contracts fell sharply to $291,000 from $968,000 year over year, while its product revenue declined to $300,000 from $623,000, and its revenue from services, which include diagnostic services, grew to $582,000 from $414,000, but were down sequentially compared to the $696,000 it posted in Q1 (see BAN 5/12/2009).

"The decline was due primarily to a decline in our capital equipment business as well as a delay in the initiation of new Department of Defense contracts," Kumar said during the call. "While we do not have good visibility on new capital equipment contracts, we expect to initiate new DoD contracts shortly," he said.

Kumar added that the "modest decline in diagnostics revenues was due to non-recurring events, including a delay in a funded 200-patient prostate cancer study using our most recently launched prostate cancer test." He said CombiMatrix expects to complete the study this year.

He also said that the company was unable to perform tests for residents of the State of New York because it did not hold a CLIA license for the state. "New York informed us that it was no longer acceptable to offer our tests under the exemption and that we needed state licensure," said Kumar. "We have applied for the license and hope to receive approval shortly."

CombiMatrix posted a net loss of $4.6 million, or $.65 per share, for the quarter, up 39 percent from a net loss of $3.3 million, or $.54 per share.

Its R&D spending increased to $1.3 million from $913,000 year over year, and its SG&A expenses climbed to $2.9 million from $2.4 million.

CombiMatrix finished the quarter with $11 million in cash and cash equivalents.

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