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Ciphergen Reports 31 Percent Loss In Q3; Company Has Cash To Last Two Years

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Ciphergen Biosystems this week reported a 31-percent decline in its third quarter revenues, which it attributed to decreased sales of its Protein Chip mass spectrometry systems and BioSeptra process chromatography products.

Revenues for the quarter ending Sept. 30 totaled $11 million, down from $16 million during the same period last year, the company reported.

R&D expenses declined to $4.7 million from $5.4 million during the year-ago quarter.

In terms of cash, cash equivalents and investments in securities, Ciphergen was left with $19 million as of Sept. 30, down from $47 million for the same time last year. However, the company expects to receive $29 million after it closes a deal with Pall on Nov. 30 to divest the BioSepra segment.

The company is selling the unit’s process chromatography equipment to Pall, which will set up centers around the country to sell the process proteomics equipment.

“This business is always lumpy and the third quarter was in line with our expectations,” said Matthew Hogan, the chief financial officer of Ciphergen.

A group of analysts had come up with a consensus projection that Ciphergen would lose $11.9 million during the third quarter, or $.35 per share. The current earnings report indicates that the company lost $.33 cents per share.

“The losses are not a surprise,” said Adam Chazan, an analyst with Pacific Growth Equities who covers Ciphergen. “When you look at these businesses, you have to look at where does the company come in, relative to expectations. A loss of 33 cents is better than 35 cents — it was in the cards.”

Chazan said the sale of BioSepra to Pall in addition to the company’s remaining cash gives Ciphergen enough money to last for another 24 months, given its current burn rate.

“Now that they’re not in such a cash crunch, it gives them a better position. As long as their core business continues to chug along and they’re able to hit the guidance for Q4, they should be in a stable position,” said Chazan.

According to Hogan, Ciphergen expects its fourth quarter revenues to range from $11 and $13 million. Out of that revenue, between $9.5 million and $11.5 million will be revenues that do not include BioSepra, he said.

Chazan pointed out that though overall revenue numbers might look disappointing, the company did well on instrument revenues, selling 19 of its ProteinChip System Series 4000, which was launched in July. While Pacific Growth Equities had projected instrument revenues of $3.5 million this quarter, Ciphergen’s instrument revenues reached $4 million.

The new Series 4000 instrument comes in two forms: The “personal edition” is operated manually and has a US list price of $125,000; the upgraded “enterprise edition” is an automated version that can run up to 168 chips unattended. It is priced in the US between $180,000 and $310,000. Of the 19 new Series 400 instruments that have been sold so far, 13 were enterprise edition instruments.

“The fact that customers chose the higher price boxes bodes well — it means that customers should consume more arrays for chips, and that people are willing to spend more for productivity,” said Chazan.

In terms of sensitivity, the Series 4000 instrument is approximately 10 times better than the old model, according to Martin Verhoef, the president of Ciphergen’s biosystems division. It can cover a wide range of peptides and proteins in one experiment, ranging from 1,000 daltons to 300,000-400,000 daltons.

Downstream Moves

By selling its BioSepra process chromatography business to Pall, Ciphergen appears to be continuing a trend within the past two years to convert itself from a research instrumentation business to a diagnostics company.

“The sale of our BioSepra process chromatography business allows us to focus our financial and business resources on our core research products and emerging diagnostic business,” said William Rich, CEO of Ciphergen. “The joint sales and marketing collaboration with Pall Corporation positions us to continue to sell the Protein Chip Systems into the process proteomics market.”

During a conference call with investors and analysts, Rich talked about progress that has been made in Ciphergen’s ovarian cancer and Alzheimer’s disease programs.

With ovarian cancer, a new, ongoing study offers promising results that a test based on three new biomarkers combined with the existing CA 125 biomarker could be used to diagnose early-stage ovarian cancer in women who at are high risk for the cancer. In terms of sensitivity and specificity, the new three-biomarker-plus-CA 125 test scores between .88 and .91 out of a perfect score of one (see story on page 3).

“Ovarian cancer is their most advanced diagnostic program and I think they’re hoping to strike a deal with some kind of up-front payment followed by royalties for actually running the test,” said Pacific Growth’s Chazan. “The original goal was to see something happen in the back end of ‘04. Now it looks like they’re pushing ‘05. It’s anybody’s guess when some form of the ovarian cancer test will make it out there.”

On the Alzheimer’s front, Ciphergen and its collaborators have identified 44 biomarkers that are associated with the disease. Out of those, they have characterized 20 of the biomarkers. In preliminary studies, a profile of the most promising biomarkers provided 86 percent accuracy in detecting early stage Alzheimer’s disease, said Rich.

“Our diagnostics division continues to report encouraging results,” said Rich. “Also, we are pleased with the progress in our efforts to identify strategic commercial partnerships.”

— TSL

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