Second (and on the other hand), after that dull and gloomy preface, a special thanks to reader Edward Dostillio who has kindly offered perspective where I can’t on one such company, Ciphergen Biosystems, Inc. (CIPH). Edward notes that the company is beginning to see institutional interest, so below is his research piece from a few months back which may help in your own due diligence:
CIPHERGEN BIOSYSTEMS INC.:
Shares Outstanding: 36M
Recent Price: 8/21/06 $1.21
Current Market Cap: $43.50
Significant Developments in Last 18 Months:
1) Partnering with Quest Diagnostics (DGX)
On July 22, 2005, the company entered into a strategic alliance agreement with Quest Diagnostics covering a three year period during which the parties will strive to develop and commercialize up to three diagnostic tests based on Ciphergen’s proprietary SELDI ProteinChip technology. Pursuant to the agreement, Quest Diagnostics will have the non-exclusive right to commercialize these tests on a worldwide basis, with exclusive commercialization rights in territories where Quest Diagnostics has a significant presence for up to five years following commercialization.
As part of the strategic alliance, there is a royalty arrangement under which Quest Diagnostics will pay royalties to Ciphergen based on fees earned by Quest Diagnostics for applicable diagnostics services, and Ciphergen will pay royalties to Quest Diagnostics based on Ciphergen’s revenue from applicable diagnostics products. To date, no such royalties have been earned by either party. Quest Diagnostics and Ciphergen have also entered into a supply agreement under which Ciphergen will sell instruments and consumable supplies to Quest Diagnostics to be used for performing diagnostics services.
In addition, for an aggregate purchase price of $15 million, Quest Diagnostics purchased 6,225,000 shares of Ciphergen’s common stock, or approximately 17.4% of shares outstanding after the transaction, and a warrant having a term of five years to purchase up to an additional 2,200,000 shares for $3.50 per share.
2) Partnering with Bio-Rad (BIO)
On August 14, 2006, Ciphergen signed a definitive agreement with Bio-Rad Laboratories, Inc. related to Bio-Rad’s purchase of the company’s proteomics instrument business, which includes the company’s SELDI technology, ProteinChip® Arrays and accompanying software. The company would retain exclusive rights to the diagnostics market. In addition, upon closing Ciphergen would agree to purchase SELDI instruments and consumables from Bio-Rad for the continued development of its diagnostics business.
Subject to approval by Ciphergen’s stockholders, and other customary closing conditions, Bio-Rad will purchase this business for approximately $20 million in cash and will make a $3 million equity investment in Ciphergen. Bio-Rad will make and sell the laser technology to life science companies. Ciphergen keeps rights to the diagnostic uses of the products.
3) Establishing a Scientific Advisory Board
The Scientific Advisory Board will meet regularly with Ciphergen’s senior management to help evaluate the company’s ongoing diagnostic programs and prioritize them towards commercialization. Members include the following distinguished members of academia and industry:
Robert C. Bast, Jr. MD - Vice President for Translational Research and the Harry Carothers Wiess Distinguished University Professor for Cancer Research at the University of Texas M.D. Anderson Cancer Center. Daniel W. Chan, PhD, DABCC, FACR - Professor of Pathology, Oncology, Urology and Radiology, Director of Clinical Chemistry Division, Department of Pathology, and the Director, Center for Biomarker Discovery at the Johns Hopkins University School of Medicine. Ian Jacobs, MD, FRCOG - Director of the Department of Gynecological Oncology and of the Institute of Women’s Health at University College London. Joyce G. Schwartz, MD - Vice President and Chief Laboratory Officer of Quest Diagnostics. William Wallen, PhD - Senior Vice President and Chief Scientific Officer of Idexx Laboratories. (IDXX)
4) Significant R&D Developments
Ovarian Cancer Diagnostic Progress:
– At the 2006 Annual Meeting of the American Society of Clinical Oncology [ASCO] held in early June, Ciphergen announced results of the first ever large-scale multi-institutional independent validation study of biomarkers discovered through current clinical proteomics efforts. As in previous studies, an index derived from the seven markers tested demonstrated improved specificity for discriminating ovarian cancer from benign pelvic masses, as well as for the detection of early stage cancer.
The biomarkers demonstrated statistically significant power to differentiate ovarian cancer patients from women with benign disease (p<.00001). This study is part of a comprehensive program being conducted with several leading collaborators at The Johns Hopkins School of Medicine, the University of Texas M.D. Anderson Cancer Center, University College London, and the University of Kentucky. In addition to developing assays designed to distinguish between benign and malignant pelvic masses, studies are underway to predict recurrence of ovarian cancer and to provide additional tools to aid physicians in triaging women considered at high risk of ovarian cancer.
Prostate Cancer Program Progress:
– At the annual meeting of the American Urological Association [AUA] held in late May 2006, researchers from Johns Hopkins presented data on two proprietary biomarkers that may aid in the management of prostate cancer, including detection, staging and prediction of recurrence. These markers, a fragment of protein C inhibitor [PCI] and complement factor 4 [C4a], were identified in a multi-center study of 400 men and a five-year longitudinal study following 104 patients after radical prostatectomy. These studies demonstrated that PCI provides information useful for the detection and staging of prostate cancer, and the combined use of pre-surgery PCI, PSA, and C4a is predictive of prostate cancer recurrence.
On August 14, 2006, Ciphergen's Gail S. Page, President and CEO, clarified the mission statement of Ciphergen moving forward.
Today we announced a significant strategic milestone that accelerates our transformation into a leading specialized diagnostics provider. We have a dedicated management team and the financial resources to build an exciting, attractive diagnostics business for long-term growth and sustained shareholder value.
Partnering with 2 giant well established and well respected multi-billion dollar companies offers CIPH the economies of scale necessary for the mass commercialization of SELDI ProteinChip technology and allows CIPH to focus its attention on developing and licensing the Specialized Diagnostic Tests utilizing the SELDI technology on a larger scale commercial level. The partnership with DGX gives CIPH a distribution channel for the diagnostic test and the partnership with BIO gives CIPH a distribution channel for the SELDI technology.
By divesting the instrument business CIPH receives an infusion of cash that will double its cash position on hand while simultaneously reducing its cash burn rate. These partnerships will allow CIPH to focus its attention on developing more specialized diagnostic tests and allowing them to bring the tests in the pipeline to the market on a larger scale and in a shorter time period than if these partnerships did not exist.
CIPH is a significantly different company than the one that went public 6 years ago, at price level that is significantly higher than where it trades today. It has a new CEO that has transformed CIPH into leaner, more focused company, with some very strategic partners and a healthy pipeline of specialized diagnostic tests. This is a great story stock that no one is following, but if and when the story on the transformation of CIPH gets more widely disseminated on the Street, CIPH’s stock will certainly no longer trade at a market cap that endangers its continued listing on NASDAQ especially with such a small float.
Disclosure: Statements above are the personal opinions of Edward Dostillio. Edward and his family own shares of CIPH.
CIPH 1-yr chart