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Helicos Secures Bridge Loan, Abandons Plans for CLIA Lab as Cash Position Weakens, Revenues Fall

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By Bernadette Toner

This article has been updated from a previous version, published Nov. 18, to reflect the fact that Helicos has filed its quarterly earnings report and disclosed other financial information.

Helicos BioSciences has entered into a bridge loan agreement worth up to $4 million with two investors in order to shore up its cash holdings in the face of dwindling resources.

In documents filed two weeks ago with the US Securities and Exchange Commission, the company said that it has entered the fourth quarter of 2010 "without any prospects of securing long-term financing from outside investors." As a result, its board determined that "a bridge financing led by certain inside investors was in the best interests of the company’s stakeholders … and would best position the company to continue operations for the remainder of 2010 and into 2011."

Under the terms of the financing, Helicos agreed to sell up to $4 million worth of convertible promissory notes to Atlas Ventures and Flagship Ventures, with a total committed purchase amount of $2 million and the right to purchase up to an additional $2 million on or before Dec. 31, 2012.

In connection with the bridge debt financing, Helicos amended the terms of an existing loan agreement with certain lenders, including GE, to defer a $200,000 payment due Jan. 31, 2011, and to defer up to five additional principal monthly payments, among other conditions.

The company disclosed the financing alongside its financial results for the third quarter of 2010, in which it reported a 43 percent drop in total revenues, to $636,000, from $1.1 million in the year-ago period; and a 28 percent increase in its net loss, to $8.9 million, from $6.9 million in the third quarter of 2009.

As of the end of the third quarter, the company had $1.9 million in cash and cash equivalents. That number stood at $1.8 million as of Nov. 10.

Helicos disclosed in its SEC filing that in addition to its previously announced layoff of 14 employees, bringing its total headcount to 25 or less (IS 9/28/2010), it aims to further conserve its diminished resources by dropping plans to develop its own CLIA-certified genetic testing lab.

The company intended to gain CLIA certification as part of a refocusing of its strategy toward diagnostic applications for its single-molecule sequencing technology that it announced earlier this year (IS 5/18/2010).

Helicos said in its SEC filing that although it still believes the HeliScope sequencer "has unique utility across a broad array of MDx tests," and that it has so far developed two prototype tests — one for hereditary breast and ovarian cancer risk and another for non-invasive prenatal diagnostics — it decided to abandon plans for the CLIA lab "due to significant financial and resource constraints."

Even with the restructuring and bridge financing, Helicos warned that it "may not have sufficient funds to pursue its business priorities" and will require "significant additional capital in the first half of 2011 to continue its operations." As a result, it said it "is no longer able to remain current in making payments to trade vendors and other unsecured creditors when such payments are due."

The company reiterated the most recent shift in its business strategy, announced in October (IS 10/19/2010), in which it aims to focus on licensing and enforcing its intellectual property. As part of this strategy, it has sued Pacific Biosciences, Illumina, and Life Technologies for infringing its sequencing patents (IS 10/26/10).

Financial Results

For the three months ended Sept. 30, 3010, Helicos recognized $214,000 in product revenue, compared to $1.1 million in product revenue for the third quarter of 2009. Product revenue for the year-ago quarter included the sale of an instrument and reagents, while product revenue for the current quarter comprised only reagent sales.

Grant revenues increased for the third quarter, to $422,000 from $13,000 in the year-ago period. The company said that it has been awarded three grants totaling approximately $722,000 under the IRS Qualified Therapeutic Discovery Project (see other article, this issue), of which $470,000 will be received during the fourth quarter of 2010 and the remainder in the first half of 2011.

Third-quarter R&D expenses increased to $4.9 million from $3.5 million in the prior-year period. The company attributed this increase to a $2.6 million charge to write off "certain excess inventory" and a restructuring charge of $164,000.

Selling, general, and administrative expenses dropped to $2.3 million from $3.1 million in the third quarter of 2009 — the result of a $575,000 decrease in salaries and benefits, a decrease of $51,000 in public company costs, and a decrease of $298,000 in other expenses, including occupancy costs, recruiting, marketing, travel, supplies, and repairs and maintenance.

The company said that it has accumulated a deficit of $187.6 million since its inception in May 2003.

Earlier this month, Helicos was delisted from the Nasdaq market after failing to meet minimum listing requirements (IS 11/16/2010). It now trades as an over-the-counter stock on the OTCQB exchange.

Separately, the company disclosed earlier this month that it missed the Nov. 15 filing date for its third-quarter results because it needed additional time "to develop narrative information for disclosure of certain subsequent events."

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