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Ciphergen Shrinks Q2 Loss to $6.8M, Warns Again It Needs Cash to Stay in Business

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Facing an uncertain future, Ciphergen this week said it shaved its second-quarter loss 11.8 percent to $6.8 million from $7.7 million a year ago despite having no revenues. A year ago, the company posted $5.3 million in receipts.
 
Overall, the picture for the company remained nearly identical to the prior two quarters as Ciphergen continues its transformation into a diagnostics firm and struggles to stay afloat without any revenue source.
 
The sale of its instruments business to Bio-Rad Laboratories in November [See PM 08/17/06] has left Ciphergen without any revenue stream, and since then, it has staked its future on three diagnostic tests in various stages of development — a test for ovarian cancer, one for thrombotic thrombocytopenic purpura, and one for peripheral arterial disease.
 
In a statement, Gail Page, president and CEO of the company, said that Ciphergen, which will be officially changing its name to Vermillion later this month, continues to “make progress in advancing our clinical development programs and moving our high-value diagnostic tests forward to commercialization.”
 
The ovarian cancer test is the furthest along in the pipeline, and the company said this week that patients in 30 medical centers have been enrolled in a clinical trial to evaluate the test, which it says can differentiate women with ovarian cancer from those with benign pelvic masses.
 
“Enrollment in our ovarian cancer clinical trial is proceeding on schedule and we continue to expect to submit the test for clearance with the US Food and Drug Administration by the end of 2007,” Page said.
 
She provided no details on the other two tests however. Ciphergen is collaborating with the Ohio State University Research Foundation to develop a SELDI-based TTP test to measure enzyme and antibody inhibition activity and jointly conduct multi-center studies to validate the test, which is aimed at helping physicians diagnose the disease.
 
In January Ciphergen said that Quest Diagnostics had agreed to help it develop and eventually commercialize a test for PAD as part of the two companies’ 2005 agreement to develop diagnostic assays based on the SELDI platform.
 
Meanwhile, the company’s long-term viability remains in doubt. In a document filed with the US Securities and Exchange Commission this week, Ciphergen repeated earlier warnings that it faces immediate and ongoing financial concerns that could compromise its ability to stay in business [See PM 05/17/07 and 04/12/07].
 
As of June 30, the company had an accumulated deficit of more than $230 million while its total assets were $13.2 million, including $9.6 million in cash and cash equivalents.
 
“Management believes that currently available resources together with existing debt facilities will not be sufficient to fund [Ciphergen’s] obligations,” the company said in its filing. It added that its “ability to continue to meet its obligations and to achieve its business objectives is dependent upon, among other things, raising additional capital or generating sufficient revenue in excess of costs.”
 
In addition to its ongoing financial troubles, the company had to deal with litigation issues during the quarter. In early July, Ciphergen agreed to pay Health Discovery $600,000 to settle a dispute over three patents involving support vector machine technology. In exchange, Health Discovery granted Ciphergen a worldwide, royalty-free, non-exclusive license to the SVM technology in applications for Ciphergen’s SELDI technology. The license covers 25 patents [See PM 07/12/07].
 

“Management believes that currently available resources together with existing debt facilities will not be sufficient to fund [Ciphergen’s] obligations.”

Just days after resolving the Health Discovery litigation, however, Ciphergen was hit with a lawsuit filed by Molecular Analytical Systems alleging, among other things, that Ciphergen breached its licensing agreement with MAS when Ciphergen sub-licensed the SELDI business to Bio-Rad, which was also named as a defendant [See PM 07/19/07].
 
One recent bit of possible good news: Last month, the company received a notice of intent from the US Patent and Trademark Office to issue a reexamination certificate for patent number 6,734,022 covering a process of SELDI mass spectrometry. If the patent is reissued, Bio-Rad will pay the company $2 million as part of its acquisition of the SELDI platform. However, the USPTO can reverse its decision. Bio-Rad has withheld the payment while the USPTO makes its decision.
 
For the quarter, Ciphergen cut its R&D expenses by 23 percent to $2.2 million from $2.9 million a year ago. Total operating expenses shrunk 38 percent to $5.9 million from $9.5 million a year ago, primarily due to “the elimination of selling and marketing expenses associated with [its] former life sciences tools business,” the company said.
 
Ciphergen said its general and administrative expenses totaled $3.3 million for the quarter, compared to $2.7 million a year ago. Expenses in the current quarter included the $600,000 it paid to settle the Health Discovery lawsuit. The company also took a one-time charge of $382,000 related to a reduction in an accounts payable amount owed by Bio-Rad to Ciphergen.
 
On August 27, the company plans to change its name to Vermillion. Starting then, it will trade on the Nasdaq under the symbol VRML.