Cash-short Beltsville-based Metamorphix hopes new Petco deal will

Daily Record, The (Baltimore), May 16, 2008 by Ben Mook

Executives at Metamorphix Inc. are touting successes such as a deal to sell its dog breed DNA test through Petco stores that they say could help the struggling animal genomics company break even this year.

However, in a letter sent to investors Wednesday, the executives also make clear that the cash-strapped biotech is in a race against the clock to raise at least $10 million in short-term capital to stay afloat.

While the Beltsville-based company has seen revenues rise and deals come to fruition with not only its dog-breed tests, but also with its livestock tests, it is struggling to escape from a working capital deficiency of $30.9 million.

As the company continues to see successes like the Petco deal and another with high-end equipment and apparel retailer The Orvis Co. Inc., it is still struggling to overcome consecutive net losses and accumulated debt.

Metamorphix, a privately held company with some publicly traded debt, told investors it needs to raise $10 million in the next few months to finance continued development of products and move toward an initial public offering that could raise as much as $45 million.

"In summary, the company believes that with adequate funding the commercial prospects for 2008 are bright," Metamorphix CEO Edwin C. Quattlebaum wrote. "If we successfully execute on our commercial plan, management expects to achieve cash flow breakeven before the end of the year."

"More importantly, reaching cash flow breakeven will unshackle us from the financial bonds that held us back for nearly 10 years, opening the door for projects that will accelerate and expand revenue growth," Quattlebaum added.

In its last quarterly filing on Feb. 29 with the Securities and Exchange Commission, Metamorphix reported a net loss of $9 million for the six-month period ending June 30, 2007. The company also reported that through the end of June 2007 it had an accumulated deficit of $240 million and working capital deficiency of $30.9 million.

Metamorphix Chief Financial Officer Thomas Russo said the company is looking to make an initial offering on the AIM, a market operated by the London Stock Exchange plc. Russo said two investment houses have been engaged to help raise the $10 million in a pre-IPO financing. He said listing on the U.K. market was a more attractive option for the company than a public offering in the U.S.

"In the U.S., the IPO market for companies our size is pretty much closed," Russo said. "That's not really the case with the AIM."

Russo said the company is poised to take advantage of new commercial opportunities coming into place that will bolster revenues. Petco will sell the DNA testing service through its grooming and services side.

"It's like the old adage goes," Russo said. "You need money to make money and that's where we find ourselves."

The company's baseline test, at $79.95, can identify up to 38 different canine breeds through a cheek swab sample. An enhanced test, Canine Heritage breed test XL, is being launched this month and replaces the original test with one that can identify more than 100 different breeds.

The company is also partnered with feedlot operator Cargill with its "Tru-Marbling" and "Tru-Tenderness" products. At a cost of around $20 per cow, the test looks at 189 DNA markers to determine if the animal is genetically predisposed to produce a higher grade of beef.

Cargill is set to use genetic testing on all of its cattle, roughly 700,000 a year, by the end of May.