CombiMatrix: Full Array of Pending Catalysts

Sep. 2.09 | About: CombiMatrix Corporation (CBMX)

CombiMatrix (NASDAQ:CBMX) is a component in my Emerging Diagnostics and Cancer Diagnostic/Therapeutic (Dx/Tx) Micro-Cap Indexes and a spin-off company from Acacia Research (NASDAQ:ACTG) which has operated independently since August 2007 as a developer of DNA MicroArrays for lab-based personalized medicine and diagnostic applications to improve treatment outcomes. On 8/12/09, CBMX reported its 2Q09 results, which included the following highlights.

  1. A 53% increase in diagnostic lab revenues during 2Q09 from the year-ago period
  2. A 17% sequential decline in diagnostic lab revenues from the prior quarter due to temporary factors that are expected to be resolved in near-term
  3. Leuchemix clinical trials are progressing well
  4. Positive data was reported on the company's Comprehensive Cancer Array (CCA) test, which is currently in development

The company attributed its sequential revenue decline to non-recurring events including a short delay in the initiation of a funded, 200-patient prostate cancer study that is now expected to be completed by the end of 2009. Also, CBMX was unable to perform its tests for residents of the state of New York (NYSEARCA:NY), which represents one of its fastest growing markets.

When new tests are developed, NY allows them to be operated on residents for a certain period of time but eventually requires state licensure (in addition to CLIA licensure) for high complexity tests. During 2Q09, NY informed the company that it was no longer acceptable to offer its tests under the exemption and state licensure was required. CBMX has applied for the license and hopes to receive approval shortly.

CBMX also announced that it is seeking to engage an investment bank to aid in its efforts to unlock shareholder value and hopes to hire and announce an engagement very shortly. The company stated that it has reached an inflection point in its strategy and has a relatively strong balance sheet with approximately a year of cash reserves remaining as well as an additional potential payment of about $36 million from a previously awarded court judgment against National Union that is pending a final ruling on appeal by the latter.

The company stated that in addition to its diagnostic assets, it owns other assets that include an ownership position (one-third stake) in the experimental anti-cancer drug Leuchemix, which is being evaluated in a dose-escalating Phase 1 safety study in England with a goal of completing a Phase 2 trial by mid-2010 and seeking a partnership to fund Phase 3 development. The CEO stated that CBMX has conducted discussions with some companies that have expressed interest in acquiring or partnering with the company or certain portions thereof.

CBMX also provided the following corporate, product, and technology updates:

  1. In April 2009, Dr. Karine Hovanes joined the company's wholly owned subsidiary, CombiMatrix Molecular Diagnostics, Inc. (CMDX), as Laboratory Director.
  2. Also in April 2009, CBMX announced that its Influenza-Detection Microarray was updated to include sequence information covering the latest strain of swine flu.
  3. In May 2009, CBMX provided a link on its website for a presentation by its CEO, Dr. Amit Kumar, regarding the latest developments for its non-invasive, array-based cancer screening test (CCA)
  4. In June 2009, the company was featured in a report that was broadcast on CNBC after announcing that a validation study of its HerScan breast cancer test was now available as advance online publication in the official journal of the United States and Canadian Academy of Pathology, Modern Pathology.
  5. In June 2009, CBMX announced that all of the appellate briefs associated with ongoing litigation against National Union were filed with the U.S. Ninth Circuit Court of Appeals and that the next step in the appellate process is for the Court to schedule oral hearings. A final decision could be reached during 4Q09, resulting in a major cash windfall to the company which is nearly equal to its current market cap of about $50 million (7.5 million shares outstanding X $6.63/share).

Preliminary results for the CCA test have demonstrated that it can non-invasively screen for the early detection of cancer, focusing on prostate, colon, ovarian, breast, and lung cancers (which account for about 85% of all solid tumors in the U.S.). The study showed that the miRNA (type of nucleic acid) expression patterns in the blood for patients with cancer (including early stage 1) were very different from patients who were cancer-free. An analysis of results indicated that a clear distinction could be made between patients with cancer and those without.

A broad-based, early detection test for cancer would have tremendous market potential and fits well with the focus on preventive medicine by the new administration. This early warning system for cancer is designed to be a non-invasive, blood screening test which would require confirmation of results by a follow-up, invasive method such as a biopsy. CBMX estimates the market potential for the CCA at several billion dollars per year in the U.S. alone, which is based on $250 per test administered to 50M people each year over the age of 40 who are believed to have an annual physical exam.

On 5/13/09, CBMX announced that its goal is to complete the R&D phase for the first version of the array by the end of the third quarter of 2009. While the initial focus is on colon, lung, breast, ovarian, and prostate cancers, CBMX has not yet publicly disclosed the specific cancers which will be on the first version of the test. By the end of 2009, the final protocols, assay development and quality control metrics are expected to be completed. During 1H10, CBMX hopes to complete clinical trials in anticipation of a commercial launch during 3Q10. In parallel with the development of this array, CBMX will be engaged in partnership discussions.

The company's CMDX lab division could easily be worth up to 2X the current market cap for CBMX of $50 million based on recent transactions for two companies in my Emerging Diagnostics Index. EXACT Sciences (NASDAQ:EXAS) closed a deal with Genzyme (NASDAQ:GENZ) earlier this year for $24.5 million for the rights to its IP/patent estate in the area of prenatal diagnostics (please note this transaction does not even include a finished test).

In addition, LabCorp (NYSE:LH) recently acquired Monogram Biosciences (NASDAQ:MGRM) for a total value of about $150 million. Monogram’s proprietary VeraTag technology has been used to develop a sensitive means to assess HER-2 status in tissue samples and has significant potential as a tool to help guide therapy decisions in breast cancer patients.

Based on the VeraTag platform, Monogram has multiple tests in development for measuring a variety of protein markers that may have clinical utility to help guide treatment decisions across a broad range of cancer drugs.

Disclosure: Long CBMX, EXAS