Ciphergen Reports Second Quarter 2004 Financial Results Launches
Next Generation ProteinChip(R) System, Series 4000 FREMONT, Calif.,
July 29 /PRNewswire-FirstCall/ -- Ciphergen Biosystems, Inc.
(NASDAQ:CIPH) reported financial results for the second quarter of
2004 and introduction of the next generation ProteinChip System,
Series 4000. For the quarter ended June 30, 2004, total revenue
decreased 25% to $10.8 million, as compared to revenue of $14.3
million in the second quarter of 2003. The decrease in revenue was
due to decreased sales of ProteinChip(R) Systems and decreased
revenue from Ciphergen's BioSepra(R) Process Proteomics products,
partially offset by increased revenue from ProteinChip Arrays and
service activities. The Company reported a net loss of $13.1
million for the second quarter of 2004, compared to a net loss of
$15.6 million for the comparable period of 2003; the comparable
period of 2003 included a $7.3 million non-recurring expense
related to a litigation settlement. William E. Rich, President and
CEO, commented: "We are very excited about the market launch of our
next generation platform, the ProteinChip System, Series 4000. We
believe that the features of this new product will enable further
expansion of the scientific progress being regularly achieved by
users of our SELDI based technology, and will translate into
renewed growth of our Biosystems Division products and services. In
addition, our Diagnostics Division continues reporting encouraging
results from our biomarker discovery programs, and we look forward
to advancing these toward clinical diagnostic tests and commercial
partnerships." Financial Guidance and Discussion of Gross Margins.
Ciphergen currently anticipates third quarter revenue of
approximately $11-13 million, representing sequential revenue
growth over Q2 2004. The Company then expects to return to a
positive year-over-year growth rate in the fourth quarter when the
impact of the Series 4000 launch is more fully felt and we ship
BioSepra's backlog of sorbent orders, which is weighted toward the
fourth quarter. In July 2004, the Company took steps to reduce
operating expenses in the Biosystems Division to align expenses
with our recent sales results, while maintaining its full
investment in and commitment to the Diagnostics Division. Ciphergen
anticipates that the actions taken in July will have a modest
impact on operating expenses in the third quarter, but should
reduce operating expenses relative to our second quarter levels by
approximately $8 million on an annualized basis starting in the
fourth quarter A number of factors have caused Ciphergen's gross
margin to fluctuate significantly with respect to the second
quarter of both 2003 and 2004, and the product launch of the Series
4000 will impact gross margin in the next several quarters. In the
second quarter of 2003, Ciphergen recorded approximately $7.3
million as a non-recurring expense in cost of revenue related to
the settlement of a litigation matter. [See page 7 of this press
release for pro forma information related to this non-recurring
charge.] Subsequent to that time, Ciphergen has been recording
approximately $0.3 million per quarter in additional cost of
revenue due to the settlement terms; depending on our revenue for
the quarter, this $0.3 million figure translates into a varying
percentage impact on gross margin. In July 2004, Ciphergen
announced the launch of its next generation ProteinChip System,
Series 4000. Principally as a result of this major new product
introduction, Ciphergen increased its inventory reserve in Q2 2004
by a total of approximately $0.8 million. This increase, and other
expenses related to contracted raw material purchases that could
not be cancelled, negatively impacted gross margin by approximately
8% in the second quarter. For the next several quarters, however,
gross margin from sales of the ProteinChip System, Series 4000 will
benefit from the fact that approximately $1.5 million in materials
costs have previously been expensed to research and development
during the period when the Series 4000 was being developed. Summary
of Recent Highlights: -- Major New Product Launch -- the Series
4000. In July, Ciphergen introduced its next generation ProteinChip
System, the Series 4000. The Series 4000 features the Pattern
Track(TM) biomarker discovery to assay process, which integrates
Ciphergen's proprietary ProteinChip Arrays, SELDI-TOF-MS detection
and Biomarker Patterns(TM) software. The Series 4000 was
specifically designed to offer a complete solution for translating
biomarker discoveries into predictive and quantitative assays on a
single platform. The Series 4000 and our Pattern Track process is
the first proteomics tool that allows researchers to rapidly
achieve biomarker discovery and development of biomarker assays on
a single platform and to enable SELDI-based assays for biological
function discovery, disease diagnosis, prognosis or prediction of
drug response. -- Preparation for Automated Chip Manufacturing. For
the past 18 months, Ciphergen has been installing an automated chip
manufacturing system in its Fremont facility. During the second
quarter, this system passed the pre-validation stage including
manufacturing our first lots of chips, and we expect to complete
validation and utilize the system in production late in the third
quarter. Expected benefits of this new system are an ability to
increase production volumes without adding labor and an improvement
in product quality. -- Significant Progress in Japan. The
ProteinChip System was selected as one of the technologies for the
high throughput proteome analysis of disease-related proteins for
the Japan Health Science Foundation's "Drug Discovery Proteome
Factory." About 20 leading Japanese pharmaceutical companies are
involved in this 5-year project as members of this consortium with
the promised support of 4.5 billion Japanese Yen. -- Ovarian Cancer
Initiative. Ciphergen's 500 sample, multi-site ovarian cancer
study, conducted in collaboration with the Johns Hopkins University
School of Medicine, MD Anderson, Duke University Medical School,
The Royal Hospital for Women (Sydney), University Hospital
Groningen and Queen Mary's School of Medicine (London) has been
accepted for publication by the journal Cancer Research, with
publication expected in the next few months. Our follow-on study,
employing 1,500 samples from two additional sites, is currently
being conducted around three clinical questions: early detection,
late stage detection and treatment monitoring for recurrence. --
Kidney Transplantation Rejection Assay. In May, researchers from
the Johns Hopkins University School of Medicine reported a
promising study in kidney transplantation enabled by Ciphergen's
ProteinChip System. The methodology employed by the research group
was used to develop the basis of a simple urine test that
identifies impending kidney failure or rejection following
transplant surgery -- a potential alternative to kidney biopsies
for renal transplant patient monitoring. -- Alzheimer's Meeting. At
the July 17-22 9th International Conference on Alzheimer's Disease
and Related Disorders in Philadelphia, Ciphergen's collaborator,
Prof. Kaj Blennow, presented promising recent results from our
joint Alzheimer's discovery program seeking to differentiate
Alzheimer's disease from other forms of dementia. At this meeting,
there was a total of 10 studies presented using the SELDI
technology, including three which highlighted Ciphergen's Amyloid
Beta multi-peptide SELDI-based immunoassay. -- Breast Cancer
Diagnostic Project. As follow-up to a previous study run at Johns
Hopkins focused on the early detection of breast cancer and
published in Clinical Chemistry, we have now completed an
intermediate 176 patient validation study in which two of the
previous biomarkers were validated. This validation study,
including the identity of those biomarkers, is now being written
for publication. We are now running a 400 patient, multi-site
additional validation study that we expect to complete by the end
of the 3rd quarter. -- Prostate Cancer Diagnostic Project. Also at
Johns Hopkins, we are utilizing two outstanding serum sets that
were originally collected from 7 sites. One sample set attempts to
stratify patients according to their PSA levels and identify other
markers that can be used with, or in place of, PSA to better
diagnose prostate cancer. The second set is a very well
characterized set of matched samples from patients whose prostate
cancer recurred and from those whose cancer did not. This study
will attempt to address the issue of aggressiveness of the prostate
cancer based on a SELDI-based multi-biomarker assay. We expect to
start to see the results of both of these studies in the 3rd
quarter. About Ciphergen Ciphergen's Biosystems Division develops,
manufactures and markets a family of ProteinChip(R) Systems and
services for clinical, research, and process proteomics
applications, as well as a broad range of bioseparations media for
protein purification and large scale production. ProteinChip
Systems enable protein discovery, characterization, identification
and assay development to provide researchers with predictive,
multi-marker assay capabilities and a better understanding of
biological function at the protein level. Ciphergen's Diagnostics
Division is dedicated to the discovery of protein biomarkers and
panels of biomarkers and their development into protein molecular
diagnostic tests that improve patient care; and to providing
collaborative R&D services through its Biomarker Discovery
Center(R) laboratories for biomarker discovery for new diagnostic
tests as well as pharmacoproteomic services for improved drug
toxicology, efficacy and theranostic assays. Additional information
about Ciphergen can be found at http://www.ciphergen.com/. Safe
Harbor Statement Note Regarding Forward-Looking Statements: For
purposes of the Private Securities Litigation Reform Act of 1995
(the "Act"), Ciphergen disclaims any intent or obligation to update
these forward-looking statements, and claims the protection of the
Safe Harbor for forward-looking statements contained in the Act.
Examples of such forward-looking statements include statements
regarding the expected impact of the introduction of the
ProteinChip System, Series 4000 on future revenue growth,
statements relating to our revenue guidance for the third quarter
of 2004 and our expected positive growth in the fourth quarter,
statements related to our expected reduction in operating expenses
by the fourth quarter, statements relating to our investment in and
commitment to our Diagnostics Division and the anticipated progress
of that business and its impact on the adoption of the ProteinChip
technology, statements regarding the timing and benefits of the new
chip manufacturing system, and statements regarding the use of
ProteinChip technology to discover useful protein biomarkers and
develop diagnostic assays for Alzheimer's disease, ovarian cancer,
breast cancer, prostate cancer, kidney transplant rejection or
other medical conditions, and future growth in the field of
proteomics. Actual results may differ materially from those
projected in such forward-looking statements due to various
factors, including the risk that competition may not only lengthen
the sales cycle but also result in permanently lost orders, the
risk that sales may not increase due to funding issues, the risks
associated with new product introductions including the risk that a
new product does not achieve significant commercial market
acceptance, that sales and marketing expenses may be temporarily
higher due to the product launch, that sales cycles could be
lengthened due to the need to train and educate customers and
potential customers about new features, protocols and technology
encompassed by the new products, that initial manufacturing costs
may be high as new production processes are introduced and that new
products may involve quality issues that negatively impact our
gross margin as well as the potential need to increase inventory
reserves for obsolescence of old products, the risk that delays may
occur in putting the new chip manufacturing system into use and
that product quality will not improve, the ProteinChip technology's
ability to validate and/or develop the Alzheimer's disease, ovarian
cancer, breast cancer, prostate cancer, kidney transplant rejection
or other biomarkers as diagnostic assays, and the continued
emergence of proteomics as a major focus of biological research and
drug discovery. Investors should consult Ciphergen's filings with
the Securities and Exchange Commission, including its Form 10-Q
dated May 10, 2004 and amended May 20, 2004, for further
information regarding these and the other risks of the Company's
business. NOTE: Ciphergen, ProteinChip, Biomarker Discovery Center
and BioSepra are registered trademarks of Ciphergen Biosystems,
Inc. Ciphergen Biosystems, Inc. Summary Financial Information
(unaudited) (in thousands, except per share data) Three Months
Ended Six Months Ended June 30, June 30, 2003 2004 2003 2004
Revenue $14,264 $10,754 $27,105 $26,292 Cost of revenue (1) 11,962
5,271 16,785 10,202 Gross profit 2,302 5,483 10,320 16,090
Operating expenses: Research and development 7,011 5,968 13,392
12,163 Sales and marketing 6,097 8,315 11,946 15,335 General and
administrative 4,246 3,745 8,954 7,626 Amortization of intangible
assets 207 207 414 414 Total operating expenses 17,561 18,235
34,706 35,538 Loss from operations (15,259) (12,752) (24,386)
(19,448) Interest and other income (expense), net 81 (419) 256
(944) Loss attributable to minority interest (125) -- 32 -- Loss
before provision for income taxes (15,303) (13,171) (24,098)
(20,392) Provision for income taxes 302 (29) 703 231 Net loss
$(15,605) $(13,142) $(24,801) $(20,623) Basic and diluted net loss
per share $(0.56) $(0.45) $(0.90) $(0.71) Shares used in computing
basic and diluted net loss per share 27,782 29,205 27,498 29,121
December 31, June 30, 2003 2004 Cash, cash equivalents and
investments in securities $47,316 $29,787 Total assets 102,026
81,174 Long term debt, net of current portion 30,879 31,075
Stockholders' equity 47,892 28,018 (1) In the three months and six
months ended June 30, 2003 cost of revenue included a non-recurring
$7,257 expense related to our litigation settlement. The following
is a reconciliation of selected financial information prepared
according to Generally Accepted Accounting Principles (GAAP) with
selected non-GAAP financial information. Management believes that
the adjustment for non-recurring expense associated with the
litigation settlement enhances an investor's ability to compare the
Company's results of operations for the three and six month periods
ended June 30, 2004 to its results for historic and future
quarterly periods. Management relies on this presentation
internally for purposes of comparing such periods. Ciphergen
Biosystems, Inc. Summary Financial Information (unaudited) (in
thousands) Three Months Ended Six Months Ended June 30, June 30,
GAAP presentation 2003 2004 2003 2004 Revenue $14,264 $10,754
$27,105 $26,292 Cost of revenue 11,962 5,271 16,785 10,202 Gross
profit 2,302 5,483 10,320 16,090 Net loss (15,605) (13,142)
(24,801) (20,623) Adjustment for non-recurring expense associated
with litigation settlement Cost of revenue $(7,257) $-- $(7,257)
$-- Pro forma selected financials Revenue $14,264 $10,754 $27,105
$26,292 Cost of revenue 4,705 5,271 9,528 10,202 Gross profit 9,559
5,483 17,577 16,090 Net loss (8,348) (13,142) (17,544) (20,623)
DATASOURCE: Ciphergen Biosystems, Inc. CONTACT: Sue Carruthers,
Investor Relations of Ciphergen Biosystems, Inc., +1-510-505 2297
Web site: http://www.ciphergen.com/
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