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Orchid BioSciences, Inc. (ORCH) Reports Fourth Quarter And Full Year 2004 Financial Results


10/19/2005 5:12:59 PM

PRINCETON, N.J., March 10 /PRNewswire-FirstCall/ -- Orchid BioSciences, Inc. , a leading worldwide provider of identity DNA testing services, today reported financial results for the fourth quarter of 2004 and year ended December 31, 2004.

Total revenues were $17.6 million for the fourth quarter of 2004, an increase of 29 percent from the fourth quarter of 2003. Total revenues were $62.5 million for the year ended December 31, 2004, up 23 percent from the year ended December 31, 2003. The revenue growth for the fourth quarter and full year of 2004 was primarily driven by an increase in testing volume, particularly in forensics as well as private human identification and family relationship testing.

"2004 was a pivotal and transitional year for Orchid. Our overall goal for 2004 was to build upon our previous restructuring activities, position the company for further growth and cement our leadership position in our DNA testing markets," said Paul J. Kelly, M.D., chief executive officer of Orchid. "We grew revenues by more than 20 percent for the full year by capturing increasing amounts of federal funding, by expanding our market share in select core market areas, and by entering into new markets. We expanded each area of our business, particularly in forensics testing in both the U.S. and U.K. and in our family relationship testing in the U.S., which includes direct-to-consumer private paternity and our new IDSecure(TM) security service."

Dr. Kelly continued, "A key legislative event during the fourth quarter of 2004 was the Congressional enactment of the President's DNA Initiative, which provides significantly increased funding to process DNA backlogs and further populate convicted felon databases. We expect that this initiative will be a catalyst for broad-based DNA testing in the U.S. criminal justice system in the future and believe that this represents a substantial market opportunity for laboratories like Orchid."

Gross margin for the fourth quarter of 2004 was 48 percent, compared to gross margin of 44 percent in the fourth quarter of 2003. Gross margin for the fourth quarters of 2004 and 2003 includes a $1.0 million royalty. Service revenue gross margin for the fourth quarter of 2004 was 45 percent, compared to service revenue gross margin of 39 percent in the fourth quarter of 2003.

Total operating expenses were $17.1 million for the fourth quarter of 2004, compared to $15.4 million for the fourth quarter of 2003, an increase of 11 percent. The increase in operating expenses was primarily due to an increase in cost of service revenue related to the corresponding increase in service revenue. The company incurred Sarbanes Oxley compliance and audit costs of $1.5 million for the full year of 2004.

Orchid reported income from continuing operations of $0.8 million, or $0.04 per share allocable to common stockholders, for the fourth quarter of 2004, compared to a loss of $2.0 million, or $0.21 per share, for the fourth quarter of 2003. The income from continuing operations before income taxes was $0.4 million for the fourth quarter of 2004, which includes charges of $1.6 million for depreciation and amortization, as compared to a loss of $1.9 million for the fourth quarter of 2003, which includes charges of $1.3 million for depreciation and amortization.

Orchid reported net income allocable to common stockholders of $0.7 million, or $0.03 per share, for the fourth quarter of 2004, compared to a net loss allocable to common stockholders of $7.3 million, or a loss of $0.46 per share, for the fourth quarter of 2003.

Orchid reported a loss from continuing operations of $8.0 million, or $0.42 per share allocable to common stockholders, for the year ended December 31, 2004, compared to a loss of $14.3 million, or $1.42 per share, for the year ended December 31, 2003. Orchid's loss from continuing operations before income taxes was $6.9 million for the year ended December 31, 2004, which includes charges of $5.9 million for depreciation and amortization, as compared to $12.7 million for the year ended December 31, 2003, which includes charges of $5.9 million for depreciation and amortization.

Orchid reported a net loss allocable to common stockholders of $10.0 million, or $0.46 per share, for the year ended December 31, 2004, compared to a net loss allocable to common stockholders of $27.5 million, or a loss of $2.14 per share, for 2003.

At December 31, 2004, cash and cash equivalents and short-term investments were $30.5 million, and the short and long-term portion of restricted cash was approximately $2.0 million. Cash used in operations in the fourth quarter of 2004 was $3.0 million, which was negatively impacted by pay down of accrued liabilities including a U.K. tax payment and by an increase in accounts receivable primarily attributable to increased sales activity in the latter half of the quarter.

"An important initiative at the beginning of 2004 was the capital restructuring we completed in the first quarter, which fortified our balance sheet and gave us a solid foundation for accelerated and profitable growth," said Dr. Kelly. "During the year, we recorded two important firsts for Orchid -- a quarterly operating profit and a quarterly positive operating cash flow. While we did incur higher than expected Sarbanes Oxley compliance and audit costs particularly in the fourth quarter which negatively impacted our operating results for the full year, we are pleased with both our quarterly and full year results for 2004 as they clearly reflect our progress in increasing revenues and controlling expenses in our operations."

Dr. Kelly continued, "Our outlook for 2005 reflects our intensified efforts to capture additional market share and enter into new and profitable growth areas, and to leverage our highly scalable operational infrastructure. In addition, our efforts to recruit a chief financial officer are well underway and we look forward to reporting our progress on that appointment soon."

  2004 Company Highlights

  Business Operations
  --  Orchid continued to increase its forensics business in the U.S. in
      both casework and CODIS testing areas.  Orchid was awarded an
      exclusive $2.7 million three-year contract by the Los Angeles Police
      Department to conduct forensic DNA analysis for new cases as well as
      testing for backlogged cases.  Also, Orchid was awarded an exclusive,
      multi-million dollar one-year contract to test more than 100,000
      felons for the State of Illinois for inclusion in the national CODIS
      database.  The contract is the largest state CODIS contract to date
      and was awarded following a competitive bid process.
  --  Orchid continued to increase its U.K. forensics DNA testing market
      share with the addition of an exclusive three-year multi-million
      dollar contract to provide services to Thames Valley Police, one of
      the U.K.'s largest police forces and its largest non-metropolitan
      police force.  The contract was awarded through Orchid's strategic
      partner Forensic Alliance.
  --  Orchid helped the innovative New York City Police Department (NYPD)
      Biotracks pilot program identify its first burglary suspect by
      matching DNA from crime scene evidence to DNA databases of convicted
      criminals.  Orchid proposed this new application of DNA forensic
      analysis in the U.S. based on its successful experience supporting a
      similar program in the U.K.
  --  Orchid entered into new private human identification and family
      relationship testing segments.  In addition to new agreements to
      provide DNA testing for immigration and adoption applications, Orchid
      launched its IDSecure service designed to ensure that workers on high
      risk assignments can be accurately identified in the event of an
      emergency or accident.  Orchid has already partnered with a number of
      undisclosed firms to provide its IDSecure service.
  --  The U.K. government renewed Orchid's scrapie genotyping contract for
      an additional two years, and the company expects to continue to be a
      major service provider to the U.K. government as part of its National
      Scrapie Plan.  In 2004, Orchid passed the one million mark in the
      number of sheep analyzed for its customers since 2001.  In a separate
      announcement today, Orchid launched a new scrapie susceptibility kit
      designed for customers with lower-throughput testing requirements who
      want to benefit from Orchid's highly accurate and robust proprietary
      genotyping assay when conducting sheep genotyping in their own
      laboratories.
  --  Orchid continued to enter into new agriculture markets.  Orchid was
      selected by Maple Leaf Foods to be the exclusive provider of high
      throughput DNA testing for a large-scale Canadian pork traceability
      program that represents the first commercial application of DNA
      technology for pork traceability.  During the year, Orchid
      successfully developed the assay technology and completed high
      throughput genotyping services for the pilot phase of the program.

  Financial
  --  In the first quarter of 2004, Orchid embarked on a capital
      restructuring effort which included a reverse stock split of 1-for-5,
      the conversion of all of its outstanding Series A convertible
      preferred stock, and a common stock private equity financing that
      raised gross proceeds of $30.3 million.

  Management
  --  Orchid strengthened its Board of Directors with the director
      appointments of Mr. James Beery and Mr. Gordon Wasserman.  Mr. Beery
      has more than 30 years experience as a lawyer in international
      business and corporate transactions and is currently Senior Of Counsel
      to the law firm Covington & Burling.  Mr. Wasserman is an
      internationally known expert in criminal justice science and
      technology and is currently chief executive officer of the consulting
      firm The Gordon Wasserman Group, LLC.
  --  Orchid fortified its management team with the appointments of Nicholas
      Conti, Ph.D., to the newly created position of vice president of
      corporate development and Warren T. Meltzer, Esq., to the newly
      created position of vice president of legal affairs and general
      counsel.  Dr. Conti most recently served as vice president, research
      and development and business operations of a new unit at Becton
      Dickinson & Company.  Mr. Meltzer brings to Orchid nearly 20 years of
      legal experience, including almost a decade at publicly-traded
      companies.

  Financial Outlook
  Orchid provided the following financial guidance:
   -- Orchid expects top-line revenues of between $75 million and $78
      million for the full year of 2005, which represents an increase of 20
      to 24 percent over 2004.
  --  Orchid expects an average gross margin of approximately 46 percent for
      the full year of 2005.
  --  Orchid expects slightly higher total general and administrative, sales
      and marketing and research and development expenses for the full year
      of 2005 primarily due to an increase in sales and marketing
      expenditures.
  --  Orchid expects to achieve positive operating income for the full year
      of 2005.
  --  Orchid expects capital expenditures of between $3.5 million and $4.5
      million for the full year of 2005.

  Conference Call Information

A conference call with Orchid management will be held on Thursday, March 10, 2005 at 10:00 am ET. To listen to the conference call, please dial 1-719-457-2659 and ask for the Orchid Conference Call. To listen to the live or archived webcast via the Internet, please visit the Investors section of Orchid's web site, http://www.orchid.com/. The webcast will be archived for 90 days.

About Orchid BioSciences

Orchid BioSciences is a leading provider of identity genetics services for the forensic and paternity DNA testing markets and for public health and animal DNA testing for food safety. Orchid's strong market positions in these segments leverage the Company's accredited laboratories in the U.S. and U.K., its innovative genetic analysis technologies and expertise, and the world-renowned Cellmark and GeneScreen brands that have been associated with exceptional quality, reliability, innovation and customer service for nearly two decades. More information on Orchid can be found at http://www.orchid.com/ .

All statements in this press release that are not historical are forward-looking statements within the meaning of Private Securities Litigation Reform Act of 1995, including statements regarding Orchid's expectation that the President's DNA Initiative will be a catalyst for broad-based DNA testing in the U.S. criminal justice system in the future and that this represents a substantial market opportunity for laboratories like Orchid; Orchid's expectation that it expects to continue to be a major service provider to the U.K. government as part of its National Scrapie Plan; Orchid's expectation of achieving top-line revenues of between $75 million and $78 million for the full year of 2005; Orchid's expectation of achieving average gross margin of approximately 46 percent for the full year of 2005; Orchid's expectation of achieving slightly higher total general and administrative, sales and marketing and research and development expenses for the full year of 2005; Orchid's expectation of achieving positive operating income for the full year of 2005; and Orchid's expectation of having capital expenditures of between $3.5 million and $4.5 million for the full year of 2005. Such statements are subject to the risks and uncertainties that could cause actual results to differ materially from those projected, including, but not limited to, uncertainties relating to technologies, product development, manufacturing, market acceptance, cost and pricing of Orchid products and services, dependence on collaborations and partners, regulatory approvals, competition, intellectual property of others, patent protection, litigation and Orchid's ability to obtain additional financing. These risks and other additional factors affecting Orchid's business are discussed under the headings "Risks Related to Our Business," "Risks Related to the Biotechnology Industry" and "Risks Associated with Our Common Stock" in Orchid's Annual Report on Form 10-K for the year ended December 31, 2003, as filed with the Securities and Exchange Commission, and in other filings made by Orchid with the Securities and Exchange Commission from time to time. Orchid expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Orchid's expectations with regard thereto or any change in events, conditions, or circumstances on which any such statements are based, except as may be required by law.

Orchid BioSciences, Inc. and Subsidiaries Condensed Consolidated Statements of Operations Three and Twelve months ended December 31, 2004 and December 31, 2003 (In thousands, except per share data) (unaudited) Three months ended Twelve months ended Dec 31, Dec 31, 2004 2003 2004 2003 Revenues: Service revenues $16,489 $12,599 $60,970 $49,140 Other revenues 1,138 1,093 1,529 1,487 Total revenues 17,627 13,692 62,499 50,627 Operating expenses: Cost of service revenues 9,148 7,651 34,963 29,014 Research and development 335 209 1,632 3,215 Marketing and sales 1,662 1,395 7,041 6,087 General and administrative 5,100 5,447 22,360 23,495 Impairment 393 - 393 837 Restructuring - 231 1,130 76 Amortization of intangible assets 433 447 1,785 1,807 Total operating expenses 17,071 15,380 69,304 64,531 Operating income (loss) 556 (1,688) (6,805) (13,904) Total other income (expense), net (168) (228) (103) 1,218 Income (loss) from continuing operations before income taxes 388 (1,916) (6,908) (12,686) Income tax benefit (expense) 457 (36) (1,121) (1,645) Income (loss) from continuing operations 845 (1,952) (8,029) (14,331) Discontinued operations: Loss from operations of a business held for sale (177) (4,027) (783) (9,237) Net income (loss) 668 (5,979) (8,812) (23,568) Dividends to Series A Preferred Shareholders - (94) (14) (534) Accretion of Series A Preferred Stock discount - (1,217) (1,129) (2,645) Beneficial conversion feature of redeemable preferred stock - - - (744) Net income (loss) allocable to common stockholders $668 $(7,290) $(9,955) $(27,491) Basic and diluted income (loss) from continuing operations per share allocable to common stockholders $0.04 $(0.21) $(0.42) $(1.42) Basic and diluted loss from discontinued operations per share $(0.01) $(0.26) $(0.04) $(0.72) Basic and diluted net income (loss) per share allocable to common stockholders $0.03 $(0.46) $(0.46) $(2.14) Shares used in per share data computations: Basic 23,038 15,724 21,828 12,831 Diluted 23,657 15,724 21,828 12,831 Orchid BioSciences, Inc. and Subsidiaries Condensed Consolidated Balance Sheets December 31, 2004 and December 31, 2003 (In thousands) (unaudited) December 31, December 31, Assets: 2004 2003 Current Assets Cash and cash equivalents $24,487 $9,938 Short-term Investments 5,999 - Restricted cash 251 953 Accounts receivable, net 14,099 9,976 Inventory 1,358 1,172 Prepaid and other current assets 1,296 2,583 Assets of a business component held for sale - 4,595 Total current assets 47,490 29,217 Fixed assets, net 9,977 11,071 Other assets Goodwill, net 2,789 2,686 Intangible assets, net 13,285 14,942 Restricted cash 1,736 1,113 Other assets 114 400 Total other assets 17,924 19,141 Total assets $75,391 $59,429 Liabilities and Stockholders' Equity: Accounts payable $2,603 $4,768 Accrued expenses 8,273 7,520 Income Taxes Payable 1,982 2,451 Current portion of long-term debt 371 1,889 Deferred revenue 983 1,812 Liabilities of a business component held for sale - 3,156 Total current liabilities 14,212 21,596 Long Term Liabilities Long term debt - 415 Long term portion of restructuring 1,029 782 Other liabilities 1,900 1,592 Total long term liabilities 2,929 2,789 Redeemable Convertible Preferred Stock (a) - 3,897 Total stockholders' equity 58,250 31,147 Total Liabilities and Stockholders' Equity $75,391 $59,429

(a) All oustanding shares have been converted into common stock subsequent to December 31, 2003.

Orchid BioSciences

CONTACT: Paul J. Kelly, M.D., Chief Executive Officer or Tracy J.Henrikson, Executive Director, Corporate Communications, +1-609-750-2200, bothof Orchid BioSciences, Inc.



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