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Ciphergen Reports an Increase in Revenues, Refers to its Biomarker Competition as Noise

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Ciphergen Biosystems last week announced its intention to “define the gold standard in biomarker discovery” amidst what it called growing competitive “noise” from other companies. The comments came during the company’s quarterly earnings conference call.

The competition has been coming “in particular [from] Bruker [BioSciences] with their ClinProt system” as well as increasingly from “companies like Waters-Micromass, Applied Biosystems, [Thermo] Finnigan,” Martin Verhoef, president of Ciphergen’s Biosystems division, said during the call. “[A]ll the mass spec companies are now talking about participating in the biomarkers market, and that of course is a change from their focus, which was originally this protein identification-based proteomics,” he said. “They’ve all seen that the biomarker segment is by far the more attractive side of it, and so they’re all trying to participate, but it’s noise right now.”

This “noise” did not, however, seem to hurt Ciphergen during Q1. Last week, the company reported for the first quarter a year-over-year revenue increase of 21 percent and decreased losses compared with the year-ago period. This represented a change from the last reporting period, when the company blamed increased competition for its disappointing revenue numbers in the fourth quarter of 2003 (see PM 2-20-04). Ciphergen’s CEO Bill Rich credited “implementation of competitive response programs” for what he saw as more encouraging results in the first quarter of 2004. Ciphergen’s revenues were $15.5 million in the quarter, up from $12.8 million in Q1 2003. The company had a net loss of $7.5 million, or $.26 per share, down from $9.2 million, or $.34 per share, year-over-year. R&D costs fell slightly to $6.2 million from $6.4 million in Q1 2003. As of March 31, 2004, Ciphergen had $39.6 million in cash, cash equivalents, and marketable securities.

The competitive response programs, Rich said, consisted primarily of in-lab demos with small-scale biologists, geared toward convincing them that Ciphergen’s system is the way to go. Such a method “resolves fears created by the core mass spec laboratory personnel that are in competition with us for their business that our technology will not be useful to them due to a variety of mass spec performance arguments.”

Ciphergen’s SELDI-TOF is often criticized for having lower resolution and accuracy than competitors’ instruments. During Bruker’s quarterly earnings call last week, CEO Frank Laukien expressed confidence that ClinProt would continue to pick up market share in the biomarker arena due to perceived higher capabilities of the company’s mass specs (see PM 5-7-04).

Rich has in the past argued that Ciphergen’s SELDI machines are easier to use and less expensive, and thus more attractive to the company’s target market of small-scale biologists (see PM 9-26-03). The company, he said at the time, was not concerned with marketing as much to large core facilities that might prefer higher resolution machines. But during last week’s call, Rich listed “the acceptance of the SELDI ProteinChip technology by core laboratories” as one of the company’s objectives for 2004. He also emphasized the importance of recent “biomarker discovery-based clinical proteomics laboratories being established in both pharma and academic settings.”

In addition to sales to core labs, other objectives for the year that Rich mentioned included a continuing decline in losses, the creation of more collaborations and alliances in the company’s process proteomics business, and the introduction of new products related to biomarker proteomics. Verhoef would not comment on what new or modified instrumentation, might be released this year, but he did say that Ciphergen “will have a very active presence at ASMS [in Nashville, Tenn. this month], and we’ll see how the other companies react there.”

Rich listed the completion of the company’s ovarian cancer biomarker validation study by mid-year as another item on its checklist, and said he hoped to “establish commercial partnerships” for an ovarian cancer test by the end of the year, “with the goal of launching a commercial assay in 2005.” In February, the company announced the goal of launching a commercial assay by the end of the year (see PM 2-20-04).

The validation study, which is being conducted in collaboration with Johns Hopkins University and other partners, is using 1,500 patient samples to validate a biomarker pattern Ciphergen found in an earlier study that used 500 samples. Rich said during the call that the data from the earlier study “has been accepted for publication in a major cancer journal, and we expect publication later this year.” He said the validation study “is progressing on plan, and we expect to have the results ... later this summer.”

In regards to the commercialization of a diagnostic, Rich said, ”we have experienced excellent interest from both clinical laboratories and in vitro diagnostic companies in the ovarian test.” He said more information about the commercialization strategy would be made public later this year, and that companies had expressed interest in other potential diagnostic tests currently in Ciphergen’s pipeline — which include biomarker tests for other cancers, Alzheimer’s disease, and cardiovascular disease.

While ProteinChip did well, Ciphergen’s Biosepra sorbents business showed continued weakness. Ciphergen’s chief financial officer, Matt Hogan, predicted that continued SELDI sales would eventually help that side of the business as well because “SELDI is the fastest way to screen chromatographic conditions.”

Hogan said he expects the company to take in a total of $16.5 million to $17 million in revenue in the second quarter of the year.

— KAM

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