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Despite Funding Shortage, CombiMatrix to Grow Sales Force, Test Menu to Support Dx Unit

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CombiMatrix reported last week that its fourth-quarter revenues decreased 37 percent, mostly due to a year-over-year decline in government contract and product revenue. Meantime, the Mukilteo, Wash.-based firm said its net loss widened by 17 percent during the quarter.

CombiMatrix said in a statement that it would need to raise additional funds, as its $9.1 million in cash, cash equivalents, and available-for-sale investments as of the end of 2008 will carry the firm only until September.

"In order for our company to continue as a going concern beyond this point and ultimately to achieve profitability, we will be required to obtain capital from external sources, increase revenues and reduce operating costs," CombiMatrix said in a statement. "As a result, the anticipation that we will be required to obtain additional financing in the foreseeable future raises substantial doubt about our ability to continue as a going concern beyond September 2009."

CombiMatrix brought in total revenues of $1.2 million for the three-month period ended Dec. 31, compared to total revenues of $1.9 million for the fourth quarter of 2007. Its revenues from government contracts decreased to $338,000 from $851,000, while its revenues from products dropped to $247,000 from $737,000. The firm's revenues from diagnostic services were up sharply to $549,000 compared to $225,000 the year before (in the year-ago period??).

During the firm's earnings call last week, CEO Amit Kumar said that the company's diagnostics services performance would be most indicative of how CombiMatrix would perform going forward.

Kumar noted that CombiMatrix's quarterly diagnostics service revenue increased by 208 percent year-over-year and 29 percent sequentially. Overall, diagnostic revenues for 2008 were around $1.7 million, quadruple the amount for 2007, he said.

"Our diagnostic revenues continue to grow at the quarterly rate of between 25 and 50 percent. We expect this trend to continue through 2009," said Kumar. He added that CombiMatrix is now also supplying international labs with its arrays for them to run in house. CombiMatrix earned $63,000 from such sales outside the US in Q4.

"In 2008, more than 2,000 people took an array-based test. Our goal for 2009 is to more than double [that] and reach between 4,000 and 5,000 patients per year," said Kumar. "Already, our lab is processing between 300 and 400 patients per month."

Kumar said that CombiMatrix this year will broaden its sales and marketing effort to buoy its diagnostics business. "While 2007 and 2008 were the years of test development and launch, 2009 will be the year we seek to gain critical mass in the utilization of our test and corresponding increasing revenue," Kumar said.

"To that end, we will continue to expand our sales infrastructure, both internally and in partnership with other laboratories," he said. CombiMatrix currently employs six sales personnel and plans to add a few more this year, though sales team growth will be "modest" as not to "broaden the firm's expenses."

Founded in 1999, CombiMatrix originally built its array business around government contracts for pathogen surveillance; the development and launch of its CustomArray in situ array synthesizer; and some catalog arrays, such as microRNA arrays, which were launched in 2005.

That year, CombiMatrix also established its molecular diagnostics subsidiary in Irvine, Calif. After failing to gain traction in the research array market, the company made a strategic decision in 2007 to put its remaining resources into CombiMatrix Molecular Diagnostics: a decision that has cost the firm reliable revenue streams, but which Kumar credits as the foundation for a healthy molecular diagnostics business.

Additionally, CombiMatrix separated from its parent company, Acacia Research, in August 2007, which enabled the firm to trade on the Nasdaq exchange under the ticker CBMX.

CombiMatrix has embarked on a strategy of test proliferation, and during 2008 and 2009 pledged to launch "one test per quarter" to make it an attractive partner for other clinical labs in the US that wished to offer genetic testing for a number of indications.

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Its testing menu currently includes the BAC and Oligo HDScan tests for identification of congenital chromosomal abnormalities; the Prenatal Scan test for identification of abnormalities in utero; the ATScan test for identification of 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.

Kumar said that this year, CombiMatrix will be more focused on supporting its existing menu than introducing new tests. "We will continue to develop additional tests in 2009, but will not focus on the rate of one per quarter, as we will focus on the expansion of our current tests," Kumar said. "While 2007 and 2008 were the years of test development and launch, 2009 will be the year we seek to gain critical mass in the utilization of our test and corresponding increasing revenue."

Comprehensive Cancer Array

One diagnostic CombiMatrix has in its pipeline is its Comprehensive Cancer Array test, which measures miRNA expression patterns to detect the presence of cancer and distinguish between cancers. The array has yielded promising preliminary data, according to CombiMatrix.

CombiMatrix presented data at the Cambridge Healthtech Institute's Molecular Medicine Tri-Conference in San Francisco last month that showed that the CCA can detect "dramatically different" miRNA expression patterns in the blood of patients with Stage 1 to Stage 4 cancer, compared to those who were cancer-free.

Results from the study, which focused on patients with prostate, colon, ovarian, breast, and lung cancers, "indicated that a clear distinction could be made between patients with cancer and those without," CombiMatrix said in a statement "Results also indicated that identification of the specific cancer was possible."

Kumar told BioArray News sister publication Pharmacogenomics Reporter last week that the CCA should become available as a laboratory-developed test in mid-2010. "This is a game changer for the whole industry," he said. "If we can catch those 1.2 million patients who are diagnosed with cancer in the US annually between six and nine months earlier, they can be treated be treated with less costly therapies, less invasive treatments, and improve their quality of life."

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.

According to the abstract presented at the conference, preliminary study data showed that "the microarray platform enables the simultaneous analysis of all human miRNAs by either fluorescent or electrochemical signals, and can be easily redesigned to include newly identified miRNAs.

The study analyzed 36 serum samples from patients with and without cancer. Investigators were able to distinguish accurately between patients with prostate, colon, ovarian, breast, and lung cancers.

The data presented at the recent conference is only the start of a number of studies CombiMatrix is planning for its CCA test, Kumar told Pharmacogenomics Reporter. Further data from this and other validating studies will be presented in the coming months, he said.

National Union

While CombiMatrix predicts a lucrative future for its diagnostics business, it still needs to obtain the capital to get there. The company has had to raise capital several times over the past few years to keep delivering tests to market.

One future source of funding could be an insurance settlement worth nearly $40 million. 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 was denied coverage for legal expenses related to its litigation with Nanogen, which was settled in 2002 (see BAN 5/27/2008). 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 attorney's fees and litigation costs.

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Kumar said last week that National Union, an American International Group company, has appealed the verdict and a briefing schedule has been set by the appellate court, with all briefs scheduled to be submitted by the end of this May.

"Barring any extensions granted by the court, a date for an oral hearing will be set and subsequently rule on the case," Kumar said. "The schedule after final briefs are submitted in May is in the hands of the court. We hope events move quickly, but we have no influence on timing."

Kumar said that, given AIG's current financial problems, he has received enquiries from stockholders about National Union's ability to pay the settlement, should the appellate court enter final judgment in CombiMatrix's favor.

According to Kumar, National Union has provided a bond that covers the judgment up to $39.2 million. "Therefore, regardless of the financial condition of AIG or National Union, the bond will cover the judgment plus interest and other charges up that sum," he said last week.

Q4 and FY 2008 in Full

CombiMatrix brought in total revenues of $1.2 million for the three-month period ended Dec. 31, compared to total revenues of $1.9 million for the fourth quarter of 2007.

The firm's net loss for the quarter was $4.1 million, or $.66 per share, compared to a net loss of $3.5 million, or $.58 per share, for the fourth quarter of 2007.

Its R&D spending rose 18 percent to $1.3 million from $1.1 million, and its SG&A spending decreased slightly to $2.4 million from $2.5 million year over year.

For full-year 2008, CombiMatrix's revenues increased 5 percent to $6.3 million from $6 million. Revenues from government contracts were flat with 2007 at $2.7 million, while product revenues dropped to $1.6 million from $2.5 million. Diagnostic service revenue jumped to $1.7 million from $611,000.

The firm's 2008 net loss was $15 million, or $2.46 per share, compared to a net loss of $12.6 million, or $2.10 per share, for 2007.

Its full-year R&D costs declined to $4.9 million from $6 million, while its SG&A spending was $9.2 million versus $9.5 million for 2007.

As of Dec. 31, 2008, CombiMatrix had $9.1 million in cash, cash equivalents, and available-for-sale investments.

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