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Biotech / Medical : Ciphergen Biosystems(CIPH): -- Ignore unavailable to you. Want to Upgrade?

To: mopgcw who wrote (237)	7/12/2004 9:35:17 PM
From: mopgcw	Read Replies (1) \| Respond to of 510

Piper Company Note July 1, 2004 Ciphergen (CIPH - $7.32) Underperform Volatility: Medium Little Detail on the Call. Lowering '04 and '05 Revenues. Concerned About Cash. * Ciphergen completed its conference call to discuss the disappointment. The company pre-announced this morning that revenues will be $10-$11 million, well below our forecast of $17 million. Beyond that, there were limited details and no guidance. * The company cited broad market/spending conditions, increased competition, as well as heightened biomarker discovery/analysis at core mass spec labs. * Ciphergen did announce that it intends to launch a next generation ProteinChip platform in 3Q:04 with increased automation and improved protein discovery and identification capabilities based on pattern recognition algorithms. * While this new system launch may be able to turn momentum, we believe it will take at least one quarter for customers to evaluate the specs/performance in an increasingly competitive market. * As a result, we are further lowering our 2004 revenues from $62.5M to $56.5M. We are also now issuing lowered 2005 revenue forecast of $69M versus our previous forecast of $105M. These numbers do not include any contribution from a potential diagnostic deal around the OvaSure test later this year. * Clearly, this dramatic decrease in sales pushes out profitability. Management has stated it intends to cut costs and we have lowered total operating budget from $70.3 million to $68.8 million this year and by almost $10 million in 2005. * We now look for Ciphergen to lose ($1.13) in 2004 and ($0.60) in 2005 versus our previous estimates of ($0.65) and ($0.08), respectively. As a result, we now see balance sheet risk. Specifically, without an upfront cash payment from a potential diagnostic deal, Ciphergen could run out of cash by the end of 2005. * Thus, everything is now relying on the diagnostic business and the results from the OvaSure validation study, which should be published later this summer. Depending upon those results, we may see Ciphergen partner the OvaSure test with a clinical reference lab or even a diagnostic company this year. INVESTMENT RECOMMENDATION: We downgraded shares of CIPH to an Underperform rating this morning. We now forecast revenues of $56.5 million this year. Applying a 2x revenue multiple to this new forecast, we are maintaining our lowered price target of $4.00 per share. This lowered revenue multiple reflects the low-end of the historical range of 2-4x, limited visibility and increased competition, and does not include the potential impact of a diagnostic collaboration. RISKS TO ACHIEVEMENT OF TARGET PRICE: Among the risks associated with Ciphergen are product adoption delays that could result in slower-than-forecast revenue growth. Ciphergen may not improve margins or control expenses, thereby missing projected breakeven of 2Q:05.