Full Array of Reasons to Buy CombiMatrix Print
Thursday, 12 March 2009 17:58

CombiMatrix (CBMX) is an ETF Innovators Emerging Diagnostics Index component and spin-off company from Acacia Research (ACTG) which has operated independently since August 2007 as a developer of DNA MicroArrays for lab-based personalized medicine applications to improve treatment outcomes, which are exempt from the more time-consuming and costly route of FDA approval as in vitro diagnostic products. The tests are also affordable, with a target price of $250-$300 on average.

Today, CBMX announced a four-year contract with NASA's Ames Research Center that includes $214,051 in funding for the first year with three additional option years at the same level of funding. The Company will provide NASA with a molecular diagnostics package that will be used to study genetic changes in bacteria as they orbit around the earth. CBMX has developed a diagnostic array reader which is the size of a mobile phone and an expected launch during 3Q09.

Earlier this month, CBMX reported its results for 4Q and FY08, which included a 208% increase in diagnostic lab revenue from the year-ago period, a 29% sequential increase in diagnostic lab revenue, and positive data on the Comprehensive Cancer Array (CCA) test (with an expected launch in 2010).

Last month, preliminary results for the CCA test 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 reported 4Q08 revenue of $1.2M, operating expenses of $5.2M, and a net loss of $4.1M versus year-ago results for these metrics of $1.9M, $5.5M, and $3.5M, respectively. The Company ended the year with cash/equivalents of $9.1M, which provides sufficient liquidity to fund operations through September 2009.

However, the Company is set to receive a $35.7M cash windfall from a court judgment against National Union for a coverage claim (an AIG company which has appealed the ruling) and has enough cash to fund operations until the projected date for the final hearing in the case during 3Q09. Additionally, CBMX expects the $36M payment will allow the Company to reach positive cash flow from operations.

Late last year, CBMX launched the first array-based test for prostate cancer, ProScan, which brings the Company's total number of tests on the market to 12, which is more than all of its competitors combined (including the launch of 1-2 new products per quarter for the last two years). ProScan allows oncologists to more precisely categorize prostate cancer patients based on genetic tumor markers to better gauge their risk level and to guide in the treatment decision process.

Other related products already on the market include the HemeScan family (three tests for blood-based cancers), the Constitutional Family (five tests which screen for over 220 congenital abnormalities on a pre/post-natal basis), ATScan (autism), Zoom In Array (sequence analysis), and the HerScan (breast cancer).

In mid-December, CBMX reported positive results in an expanded HerScan study, but Genetech (DNA) filed a Citizen Petition last year asking the FDA to re-evaluate its regulation of homebrew, lab-based tests such as HerScan for more stringent regulation. However, CBMX is confident in the regulatory status for its lab-based tests based on FDA feedback and

will continue to launch new molecular diagnostic products in the future, such as ProScan.

CBMX estimates the market potential for this comprehensive cancer array (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 and

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the Company hopes to launch the test in 18 months (around mid-2010).

Given a market cap of around $50M, trailing 12-month revenue of $6M, and trends in favor of preventive medicine + growth in the population over age 40 - CBMX would only need to capture one-half of 1% of this potential market ($60M) to have a significant positive impact on its current market value.

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