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As New Chapter Unfolds for Ciphergen, Q3 Results Retell Familiar Story as Revenue Drops 34 Percent

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The sale of its proteomic tools business to Bio-Rad may be in a holding pattern, but Ciphergen is already touting itself as a diagnostics firm.
 
One week after the anticipated Nov. 1 completion date, the sale of Ciphergen’s Surface Enhanced Laser Desorption/Ionization technology and other products to Bio-Rad still remained delayed. But in comments to analysts this week, Ciphergen CEO Gail Page made it clear that the company is forging ahead in its new identity as a specialty diagnostic firm.
 
Meanwhile, the company reported that third-quarter revenue dropped 33.8 percent to $4.7 million while losses shrank 6.7 percent to $7 million.
 
Once a company with ambitious proteomic dreams, Ciphergen now joins the heap of businesses built on the promise of the proteome only to find itself having to remodel its business as the science failed to reap profits as quickly as they had once hoped.
 
In its new iteration Ciphergen will have about 50 employees, down from about 160 a year ago. The company said that with the sale of its SELDI instruments, ProteinChip arrays, accompanying software, and biomarker development services, it “does not anticipate having significant revenue until its diagnostic tests are commercialized.”
 
However, as a leaner company with lower operation expenses Ciphergen said it has enough cash to continue funding operations for the foreseeable future.
 
During the quarter ended Sept. 30, operating expenses declined to $8.7 million from $10.7 million a year ago. The company estimates that the divestiture will cut that quarterly figure further to between $4 million and $5 million.
 
The company spent $2.9 million on R&D during the quarter and had $15 million in cash and cash equivalents as of Sept. 30.
 
To relieve additional financial pressure, the company privately also negotiated to exchange $27.5 million of outstanding 4.5 percent convertible senior notes due in 2008 to new 7 percent notes due in 2011 and cash [See accompanying story].
 
“By extending the maturity and decreasing the debt … it gives us more flexibility to run the business going forward,” Page said during a conference call accompanying the release of its third-quarter results. “It was all about strengthening the balance sheet and taking some pressure off.”
 
The company’s lead diagositc tool is an in vitro test for ovarian cancer. Ciphergen said it plans to submit results from prospective clinical trials for the test to the US Food and Drug Administration next year. If approved by the FDA, the company will market the product during the second half of 2007, Page said.
 
”Physicians need a diagnostic test that can stratify patients with a pelvic mass and a higher risk for ovarian cancer versus those with a benign disease,”Page said.
 
Ciphergen is taking steps to sell the ovarian cancer test outside the US also. “We expect to be able to offer this test in at least one [other] country next year,” Page said.
 
Ciphergen is also working with Stanford University to develop a diagnostic for peripheral arterial disease and with Ohio State University on a test for thrombotic thrombocytopenic purpura.
 
In 2005, Ciphergen also penned a $15-million deal with Quest Diagnostics under which Quest will develop diagnostic tests based on the SELDI Protein Array technology. As part of that alliance Quest is currently developing a diagnostic test for ovarian cancer which it expects to eventually market as an ASR. 
 
The two also have a supply agreement under which Ciphergen wil sell instruments and consumables to Quest for use in performing diagnostic services.
 

“We are intent on building a molecular diagnostics business that can change how physicians determine the best treatment for their patients. We believe that this business model will provide long-term growth and sustained value to our shareholders.”

During the conference call, Page said that if and when Quest brings an ovarian cancer test to market as an ASR, the Bio-Rad deal “puts us in a stronger position because [Bio-Rad] have excellent manufacturing” capabilities, Page said. 
 
Under terms of the sale, Bio-Rad would manufacture, sell, and market the SELDI technology to the life sciences market for applications such as biomarker discovery, characterization, and validation.
 
Ciphergen would retain exclusive rights to the proteomics tools products for the diagnostic market and has a supply agreement with Bio-Rad to purchase SELDI instruments and consumables for the continued development of its diagnostic business.
 
Ciphergen’s metamorphosis into a diagnostic firm began four years ago when then-CEO William Rich said the company would have to move into the diagnostics market in order to stay alive.
 
In the ensuing years, Ciphergen pushed toward that goal by forming collaborations. Last year, in addition to the deal with Quest, the company reached an agreement with Bayer Pharmaceuticals to jointly discover and validate biomarkers.
 
The agreement called for Ciphergen to use its SELDI-TOF-MS platform to help Bayer identify cancer biomarkers and develop an assay for use in clinical trials [See PM 07/01/05].
 
In the summer of 2005, the company formally announced it was changing its business model from a tools vendor to a diagnostics firm that also did biomarker discovery.
 
“We are intent on building a molecular diagnostics business that can change how physicians determine the best treatment for their patients,” Page said during the conference call this week. “We believe that this business model will provide long-term growth and sustained value to our shareholders.”
 

 
As Ciphergen moves ahead as a specialty diagnostics company, here is the status of some of its projects.
 
Partner Disease
Current Status
Quest Ovarian cancer Quest is developing a test as an ASR. Concurrently, Ciphergen plans to apply to the FDA next year for an in vitro test. If approved, the company will commercialize the test in the second half of 2007.
Stanford University Peripheral arterial disease Test to be developed
Ohio State University Thrombotic thrombocytopenic purpura Test to be developed

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