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As Q1 Revs Drop to $21K, Ciphergen Warns Of Cash Problems; Future Rests on Dx Tests

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Ciphergen continued to voice concern about its ability to keep its doors open this week as it reported a 99.7 percent plummet in first-quarter revenues.
 
For the three months ended March 31, Ciphergen’s revenues dried up to $21,000, compared to $7.1 million during the year-ago period. All revenues came from services provided to an unnamed customer. In November, the company sold its Surface Enhanced Laser Desorption/Ionization technology, ProteinChip systems, accompanying software, and biomarker development services to Bio-Rad, leaving it with no revenue-generating products [See PM 08/17/06].
 
In prior earnings results, company officials had warned that the divestiture of the SELDI business would leave it with no revenue stream. This week, company officials touted the potential of three diagnostic tests under development, including an ovarian cancer test that it plans to submit to the US Food and Drug Administration by the end of the year. But in a document filed with the US Securities and Exchange Commission this week, the company reiterated a previous stark assessment of its future.
 
“We believe that our current cash balances may not be sufficient to fund planned expenditures,” Ciphergen said in the SEC filing. “This raises substantial doubt about our ability to continue as a going concern.” As of March 31, Ciphergen had $13.6 million in cash and cash equivalents.
 
The company goes on to say that it may have to raise funds, either in the public or private markets, to remain operational, and if it cannot, “we may have to delay development or commercialization of certain of our products or license to third parties the rights to commercialize certain of our products or technologies that we would otherwise seek to commercialize.”
 
For Ciphergen, which does not anticipate generating any “substantial” revenues until its diagnostic tests are on the market, any delay in commercializing its tests could be tantamount to a death blow.
 
During this week’s conference call, Gail Page, the company’s president and CEO, said that if forced to raise capital to stay afloat, “We have a lot of opportunities, we’re extremely well positioned after this past year … I think it’s our job to continually look at these and opportunistically fund our operations going forward.
 
“And whatever makes the most sense and is the best deal for the company, then that’s what we will pursue in light of the shareholders,” she said.
 
While companies routinely issue warnings in SEC filings about adverse conditions and risks that may affect their businesses, the long and troubled financial history of Ciphergen gives this week’s warning particular urgency.
 
Future Hinging on Three Tests
 
Last month, the company issued a similar warning about its tenuous financial state and disclosed that an independent auditor, PricewaterhouseCoopers, expressed concerns about Ciphergen’s survivability [See PM 04/12/07]
 
The last year has been a particularly hardscrabble one for the company. Last summer, it was threatened with the delisting of its shares after its market capitalization fell below Nasdaq requirements. Eventually, the company’s stock was moved from the exchange’s National Market to its Capital Market, which has looser market cap requirements [See PM 08/31/06].
 
During 2006, as the company transitioned from a proteomics tool firm to a diagnostics company — a move finalized by the sale of its SELDI platform to Bio-Rad — Ciphergen’s stock fell nearly 20 percent, and so far this year, it has slid another 9 percent.
 
In spite of the difficulties facing the company, Page this week continued to say there was hope on the horizon for Ciphergen. The company’s future lies in three tests under development — a diagnostic test for ovarian cancer; a test for peripheral arterial disease; and a test for thrombotic thrombocytopenic purpura.
 

“We believe that our current cash balances may not be sufficient to fund planned expenditures. This raises substantial doubt about our ability to continue as a going concern.”

“I think it’s a miracle we have landed on our feet after the transition we went through and we have three late-stage products,” Page said during a presentation the company gave at this week’s Rodman & Renshaw Global Healthcare Conference in Monaco.
 
Of the three, the ovarian cancer test is the furthest along in the commercialization pipeline. In January, Ciphergen initiated a prospective clinical trial to demonstrate its superiority over the current standard of care, physical and radiological exams, for differentiating benign from malignant ovarian tumors.
 
The company has set up 25 clinical trial sites, Page said, and eventually between 700 and 1,000 patients will be enrolled in the trials. At the end of 2007, Ciphergen plans to submit the test to the FDA for approval as an in vitro diagnostic test.
 
“We’ve been working hand in glove with the FDA on this particular indication, and how best to move it through the FDA process. And we found the FDA to be very cooperative and helpful in helping us design our trial to assure a successful outcome,” Page said.
 
The company also plans to bring the test to market in at least one country in Europe during the year. Ciphergen has performed preclinical trials of the test there and contracted with the Emergo Group for support in getting regulatory approval in Europe.
 
In January, Ciphergen said that Quest Diagnostics had agreed to help it develop and eventually commercialize a test for peripheral arterial disease as part of the two companies’ 2005 agreement to develop diagnostic assays based on the SELDI platform.
 
During the coming year, the two will further validate the test and prepare it for a market launch, Page said.
 
The company also continues to develop its thrombotic thrombocytopenic purpura tests. Ciphergen is working with Mosaic Health Care Consultants to develop reimbursement strategies for the test [See PM 12/21/06].
 
For the quarter ended March 31, the company reported a net loss of more than $6 million, up 10.7 percent from a loss of $5.5 million a year ago.
 
R&D spending during the quarter fell 36 percent to $1.9 million from $3 million a year ago, primarily due to the company’s focus on diagnostics after selling its tools business to Bio-Rad, the company said.
 
The company has slashed its workforce by about 75 percent during the past year to its current headcount of 38.
 
Ciphergen also said that it intends to change its name to Vermillion to reflect the changes that it has undergone recently. The change is subject to shareholder approval, which the company hopes to receive at its annual meeting on June 29.

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