As part of its ongoing plan to turn its business from an unprofitable tool shop into a successful diagnostic company, Ciphergen Biosystems has agreed to sell its proteomic tools arm to Bio-Rad for $20 million in cash.
The sale, announced this week, would give Bio-Rad Ciphergen’s Surface Enhanced Laser Desorption/Ionization technology, ProteinChip arrays, and accompanying software. Bio-Rad will also buy a $3-million equity stake in the company.
“With Bio-Rad as a strategic partner, we intend to accelerate our transformation into a leading specialized diagnostics provider,” Gail Page, president and CEO of Ciphergen, said during a conference call to discuss the deal. “This is a goal that we have articulated and have been dedicated to achieving.”
Meanwhile, the deal would be a significant addition to Bio-Rad’s growing proteomic business and allow the company to “provide a broad range of proteomic tools from basic separations to full identification of proteins,” said Norman Schwartz, president and CEO of Bio-Rad.
In an interview with ProteoMonitor this week, Ron Hutton, Bio-Rad’s treasurer, said the company bought Ciphergen’s business for one simple reason: “It’s a fit for the company in that it fills in a product area that was heretofore unmet in our product line,” he said. “We are completely dedicated to the proteomics business and this is just further evidence of that.”
Terms of the divestiture call for Bio-Rad to manufacture, sell, and market the SELDI technology to the life sciences market for applications such as biomarker discovery, characterization, and validation.
Ciphergen will retain exclusive rights to the products for the diagnostics market and will maintain a supply agreement with Bio-Rad to buy SELDI instruments and consumables for the continued development of its diagnostics business.
The companies will also collaborate to identify SELDI customers interested in partnering with Ciphergen to commercialize biomarker discoveries, Ciphergen said.
Following the transaction, which is expected to be approved by Ciphergen stockholders in the fourth quarter, Ciphergen will have about 40 employees dedicated to commercializing diagnostic tests, primarily in oncology, with an initial focus on ovarian and prostate cancers.
According to documents filed with the US Securities and Exchange Commission last week, Ciphergen’s proteomics tool division posted $18.4 million in sales in 2005, down from $31.4 million in 2004, while sales in its diagnostics business rose to $8.9 million in 2005 from $8.8 million in 2004.
“I don’t think it’s a surprise that they made a choice to try to shore up their company overall,” said J.P. Auffret, director of the Bioscience Management Program at George Mason University who follows mergers and acquisitions in the bioscience industry.“I think they had to choose a path eventually.”
Diagnosis Calls for Diagnostics
Ciphergen has been transitioning into its second act as a diagnostics company since as early as 2002 when then-CEO William Rich said that if Ciphergen were to remain viable as a business it would have to move into the diagnostics business.
Since then, Ciphergen has slowly established collaborations with a wide array of groups to develop diagnostic tools using its SELDI platform. Last year, the company announced two major deals involving its biomarker discovery and diagnostic businesses.
In one, Quest Diagnostics made a $15 million equity investment in Ciphergen to develop three diagnostic assays chosen from Ciphergen’s pipeline [See PGX Reporter, 07/28/05]. Ciphergen also reached an agreement with Bayer Pharmaceuticals, representing the first time that Ciphergen had reached a long-term, formal agreement with a major drug company to jointly discover and validate biomarkers [See PM, 07/01/05].
During the conference call Page said that the sale of the proteomics tool business would substantially reduce Ciphergen’s operating expenses, strengthening the company’s financials.
In second-quarter results announced this week, Ciphergen said revenues declined 24 percent to $5.3 million year over year. Net loss declined 18 percent to $7.7 million [See related story].
“Our ending cash on June 30 was $20.6 million and reduced operating expenses coupled with the cash infusion from the deal will help give us the resources needed to commercialize our diagnostics program,” Page said.
For Ciphergen, the past year has been an especially turbulent one. A year ago, the company went through a major reorganization in massive lay-offs [http://www.proteomonitor.com/issues/5_31/features/131295-1.html.
Late last year, shortly after revealing that its 2005 second-quarter results contained improper revenue figures, it was hit with a class-action lawsuit alleging the company had misled investors with those results [See PM, 12/09/05].
In December, Rich also abruptly retired from Ciphergen. The company never gave a reason for his departure.
“Bio-Rad is “completely dedicated to the proteomics business and this [acquisition and investment] is just further evidence of that.”
The company has also tussled twice with the Nasdaq National Market: once for failing to meet the Exchange’s minimum market capitalization requirement, and another time for allegedly failing to properly file a listing notification and obtain shareholder approval for its stock sale to Quest [See PM, 01/19/06].
The latter dispute has been resolved, but the insufficient market cap issue is still pending. Under Nasdaq rules, a company that fails to have at least $50 million in market cap for 10 consecutive trading days is subject to delisting [See PM 06/29/06]. Ciphergen missed a Nasdaq-imposed June 23 deadline to lift its market cap to above $50 million and risks being delisted.
In July Ciphergen said it was going to request a hearing before a Nasdaq Listing Qualifications Panel to appeal the determination. The company did not address the issue during its conference call and did not return messages seeking comment.
At the close of market Aug. 16, the company had a market cap of $41 million.
Proteomic Alchemy: Turning Proteins Into Profit
While Ciphergen is scaling back on its protein tools business, Bio-Rad is taking the opposite path. The company earlier this year purchased ProteOptics, based in Haifa, Israel, giving it a platform for the functional analysis of proteins.
Prior to the purchase, Bio-Rad’s main proteomic product was its Bio-Plex system for quantitative peptide and protein analysis.
In Bio-Rad’s earnings conference call two weeks ago, CEO Schwartz said the company’s protein business is a revenue grower. Hutton, Bio-Rad’s treasurer, said the purchase is not expected to greatly affect the company’s bottom line, but “it’s going to help us round out our product line in that area.”
Hutton wouldn’t say where Ciphergen may have stumbled on the proteomics tool business but said, “we certainly have plans to utilize our sales channels and our distribution systems in the sense that we have offices in over 30, 35 countries in the world and we have an installed sales force all over the place so that we would certainly anticipate that we would make this a product that we would be using through our sales force.”
Auffret of George Mason University said Bio-Rad’s distribution channel for its life science operations would do a better job at managing the new tool business than Ciphergen, which had separate distribution channels for its two businesses.
“Ciphergen was a little cut off from the customers since they were much smaller [than Bio-Rad] and their focus was split,” he said. “I think [Bio-Rad] picks up a business where there’s some potential for a good future if they invest more R&D into it.”