Scanning the CIPH links a few days ago, I was >>wondering why this Hutchins fellow is so anxious to get out, seemingly at any price<<
Didn't even spell his name right, but I got my answer in the 10-K:
>>Our subsidiaries, IllumeSys Pacific and Ciphergen Technologies, each sublicense from Molecular Analytical Systems, Inc., or MAS, the patents underlying our core SELDI technology. MAS holds an exclusive license from Baylor College of Medicine with respect to those patents. The MAS sublicenses provide us with the exclusive right under the Baylor patents to make, use and sell instruments, devices and non-drug consumables for use by customers in the life science, drug discovery and clinical diagnostics laboratory markets worldwide. The term of each sublicense is the life of the Baylor patents in each country where we do business or, if no patents issue in a particular country, April 2013. We may terminate the sublicenses upon six months notice, and MAS may terminate them in the event of our bankruptcy, or if a material breach remains uncured following 90 days notice of such breach. We pay MAS a royalty equal to 2% of revenues we generate related to the sublicense for four years from the date of first commercial sale, with an annual maximum royalty payment of $500,000 per sublicense. IllumeSys Pacific made its first commercial sale on April 1997. Ciphergen Technologies, Inc. has not made a sale. We have the right to any improvements we make to the SELDI technology.
Ciphergen Biosystems, Inc., Ciphergen Technologies, Inc. and IllumeSys Pacific, Inc. v. Molecular Analytical Systems, Inc., LumiCyte, Inc. and T. William Hutchens. We instituted this proceeding against Molecular Analytical Systems, or MAS, and LumiCyte on July 12, 2000 in the Superior Court of the State of California for the County of Santa Clara, case number CV791094. In October 2000, we amended our complaint to make additional claims against MAS and LumiCyte and to add Dr. T. William Hutchens as an individual defendant. Dr. Hutchens is the Chief Executive Officer of both MAS and LumiCyte, a former officer and director of Ciphergen, and the beneficial owner of approximately 12.1% of Ciphergen's outstanding common stock. We brought the cause of action in response to the defendants' allegations that we materially breached two sublicense agreements relating to the SELDI technology between MAS and our subsidiaries, Ciphergen Technologies and IllumeSys Pacific, and threatened termination of those agreements. The defendants claim that our marketing and sale of SELDI information and service products to research laboratories and other customers, our sale of SELDI-derived software and the manner in which we operate our Biomarker Discovery Centers constitute material breaches of the agreements. Ciphergen denies that it has breached the sublicense agreements. Our cause of action seeks damages for unfair competition, misappropriation of trade secrets, and breach of contract, a declaration that we have the right to sell SELDI information and service products, including through our Biomarker Discovery Centers, a preliminary injunction preventing MAS from terminating the sublicense agreements, and further injunctive relief precluding defendants from operating in our licensed markets. In October 2000, MAS and LumiCyte filed a cross-complaint against Ciphergen, Ciphergen Technologies and IllumeSys Pacific. The cross-complaint seeks damages for breach of contract, intentional interference with prospective economic advantage, unfair competition, misappropriation of trade secrets, termination of the sublicense agreements, a declaration regarding the rights of the parties under the sublicense agreements, injunctive relief and the prevention of Ciphergen's use of alleged trade secrets of MAS. Ciphergen and MAS have entered into an agreement that provides that MAS's license termination notices are suspended pending the conclusion of the cause of action. The cause of action is currently in the discovery and pleadings phase, and neither party has received a decision from the court regarding their requests for relief. A case management conference has been scheduled by the court for May 15, 2001<<
>>In communications with us, Molecular Analytical Systems ("MAS") has asserted that the sublicense agreements to the SELDI technology do not extend to our providing services in proteomics to customers as we currently plan, which is part of our Biomarker Discovery Center strategy. We believe that the sublicense agreements do grant us the right to provide services in this manner, and we plan to continue pursuing our Biomarker Discovery Center strategy as we attempt to resolve our dispute with MAS. However, if, as a result of litigation, it should be determined that these activities at our Biomarker Discovery Centers are beyond the scope of the sublicense agreements, we may be required to cease operation of the Biomarker Discovery Centers or significantly alter their activities.<<
>>Competition in our existing and potential markets is intense and we expect it to increase. Currently, our principal competition comes from existing technologies that are used to perform many of the same functions for which we market our ProteinChip System. The major technologies that compete with our ProteinChip System are liquid chromatography-mass spectrometry and 2D-gel electrophoresis-mass spectrometry.<<
I need to get a handle on the cost and throughput versus the above approaches. It certainly requires less sample prep. They use TOF with their SELDI for molecular weight. There are thus some similarities with these competing techniques. And apparently they could be complementary:
>>Our research and development efforts related to our ProteinChip Readers includes research in the automation of sample introduction, high-sensitivity detection, improvement in system resolution and quantitation. In addition, we are developing new SELDI-based accessories for high resolution, tandem mass spectrometry, whose capabilities will further enhance our ProteinChip System.<<
And from the Risks section:
>>If we are unable to reduce our lengthy sales cycle, our ability to become profitable will be harmed.
Our ability to obtain customers for our products depends in significant part upon the perception that our products and services can help enable protein biomarker discovery, characterization and assay development. From the time we make initial contact with a potential customer until we receive a binding purchase order typically takes between a few months to one year. Our sales effort requires the effective demonstration of the benefits of our products to and significant training of many different departments within a potential customer. These departments might include research and development personnel and key management. In addition, we may be required to negotiate agreements containing terms unique to each customer. We may expend substantial funds and management effort and may not be able to successfully sell our products or services in a short enough time to achieve profitability.<<
Any further thoughts, troops? My thought is that the cap on royalties being $1 million per year for both sublicenses means the lawyers will once again make more than is at issue here. Hope they settle this soon. Sheesh, at these prices the company could buy Mr. Hutchen's shares
for a slight premium without making a huge dent in cash. Reduce float and spend less on lawyers, a true win-win. Alas, it will not likely be this simple.
Cheers, Tuck |
