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May 2003: Microfluidics Ultrahigh-throughput Underachiever

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It wasn't so long ago that microfluidics was the hot new thing. In the late 1990s, the heady days of biotech IPOs and great expectations for genomics, the concept of a miniaturized laboratory just seemed to get folks excited — in the lab and in investment banks. Consulting companies forecasted that the market for microfluidics systems would grow into the multibillions within seven years, microfluidics companies were raising hundreds of millions in IPOs, and best of all, the technology itself was downright cool: who wouldn't want to get his hands on an integrated circuit for performing biology experiments?

But in what's now become an all-too-familiar story, things just didn't materialize the way people hoped. First the IPO window slammed shut, restricting access to capital. Then big pharma began tamping down its capital spending. Perhaps most unfortunate of all, microfluidics companies never were able to convince customers of the merits of the technology. What Frost & Sullivan predicted would be a $3.4 billion market by 2004 is just $175 million in 2003, according to the market research firm's analyst Nate Cosper.

Lucky for the companies still in — or now entering — the business, microfluidics might just be too powerful a concept not to succeed eventually. In the meantime, however, there's a frantic search for the one application that will force reluctant customers in academia, biotech, and big pharma to go whole hog on microfluidics.

Forgetting About Forcing a Fit

The bad news is that no one has come close to finding that killer app yet. In fact, a few of the microfluidics pioneers have either left the field or struggled along under a cloud of unfulfilled expectations and less-than-impressive market penetration. Take Orchid BioSciences. The Princeton, NJ-based genotyping outfit had initially hoped to use its microfluidics technology as a platform for its SNP-scoring efforts, but following its 1998 acquisition of Molecular Tool, Orchid decided it could roll out its SNP-scoring tool on a variety of platforms, and didn't need microfluidics for its technology to be high throughput. "The investment in R&D was a high expense for us," says an Orchid spokeswoman, "and it would have been even higher to integrate microfluidics with SNP scoring."

Aclara is the most recent early microfluidics powerhouse to jump ship. Late last summer, the Mountain View, Calif.-based company decided it would drop its microfluidics work to focus on selling its tagging chemistries for use with other, less disruptive instrument platforms. The eTag technology just didn't need Aclara's microfluidics to work well, company executives say, negating a customer's incentive to purchase the accompanying instrumentation. "Aclara made the very logical decision — which I was a part of — to focus on the assay technology, and take advantage of the installed base of equipment that was out there," says Herb Hooper, a co-founder and director of Aclara who served as the company's chief technology officer before joining Ampersand Ventures in 2002. "We could decouple the commercialization of the microfluidics technology from the reagent technology … and focus on what was always going to be the higher-margin product, which is the assay chemistry."

Caliper Technologies has struggled too — primarily from being unable to live up to lofty expectations. Despite having won an IP battle with its Mountain View neighbor, a judgment in 2000 that transferred $32.5 million from Aclara to Caliper, the microfluidics pioneer has had limited success thus far in placing its LabChips and associated instruments in life sciences labs. Even with help from its partner Agilent Technologies, which manufactures the instrument platform and helps distribute and market Caliper's LabChip products, the company still lost $41 million in 2002.

Size Doesn't Matter, Money Does

But for those hoping to make it in the business — and there are many — trials and tribulations the likes of Caliper and Aclara's may provide a few useful lessons. Obviously, it's the product that sells, not the technology, says Mike Knapp, Caliper's co-founder and now CEO. "[The customer] doesn't care whether the technology is microfluidics. They just get a better answer, quicker, for less money," he says.

Caliper has also learned that it must have products specific to customers' needs. Although Caliper has so far installed 1,500 of its LabChip systems through its exclusive distribution arrangement with Agilent — and has devised nine chips for various applications, including DNA separation and SNP analysis — Knapp says the rate at which customers are adopting the technology is significantly slower than they had hoped. Caliper is concentrating on developing OEM capabilities for designing a chip to perform exactly the functions customers are looking for.

Even working exclusively with one distributor seems to have produced mixed results — at least for Caliper and Aclara. When Caliper and Agilent signed their manufacturing and distribution agreement in 1998 the theory was that exclusivity was the price a small technology company had to pay to bring a marketing and distribution behemoth like Agilent on board. Now, five years later, Caliper is hoping to build on its initial exposure via Agilent by signing additional distribution deals and selling its LabChip consumables directly when the Agilent deal expires in this month. "They have rights to [applications] that they will never get around to," Knapp says. "You might as well exploit those with other people who are interested in exploiting those now."

For Aclara, however, a relationship with Applied Biosystems wasn't so benign. In 1999, the two companies agreed to exclusively develop applications for DNA sequencing and analysis using Aclara's microfluidics technology, which is based on miniaturized capillary electrophoresis. But when demand for sequencers fell off after the Human Genome Project hierarchy announced its practical completion, combined with advances in traditional capillary electrophoresis technology that improved the throughput and efficiency of the sequencers already on the market, ABI began to have second thoughts about investing heavily in Aclara's technology, says Dennis Harris, Aclara's senior vice president for business development. "We weren't big enough to develop the instrumentation and all the reagents for sequencing ourselves," he says, so the company opted to abandon microfluidics altogether in favor of tagging chemistries.

Early entrants such as Caliper and Aclara also say that competition is not an issue, insofar as one company's success demonstrating the power of microfluidics helps others in the field. (Competitions over IP, however, are another matter.) "The more applications that are out there and seem to be successful, the quicker the markets will develop," says Caliper's Knapp. "It's not a great thing that it's hard [for competitors] to make a good commercial success out of the technology." The problem, Knapp adds, is that until customers view microfluidics as a low-risk technology, it won't become mainstream.

The New Micro Wave

Risky or not, a new crop of microfluidics companies is now bringing its products to the fore, hoping they've found the killer application that industry watchers impatiently await. One of the most ambitious of these attempts comes from a company called GenoMEMS, which is developing a microfluidics-based DNA sequencing instrument in collaboration with Shimadzu Biotech. The technology, a 2001 spinout from the MIT/Whitehead Institute labs of Paul Matsudaira and Dan Ehrlich, employs up to 384 channels etched into a large (25cm x 50cm) glass plate as a substitute for capillary electrophoresis.

But Diane Kozwich, the company's vice president for application technology development, said that compared to ABI's 3730 DNA sequencer, GenoMEMS's prototype system has five times the throughput, and reduces the cost of reagents by 80 percent. Shimadzu has said publicly it hopes to begin selling the instrument in the third quarter of this year, and at Cambridge Healthtech Institute's Molecular Medicine Marketplace meeting in March, Kozwich said Shimadzu planned to have a beta version of the instrument available in June.

Fluidigm, a South San Francisco-based company founded on technology developed in biophysicist Stephen Quake's laboratory at CalTech, is banking that the ultimate use for its microfluidics platform is protein crystallization. The company's microfluidics technology relies on layers of molded soft elastomer, which when assembled act to pump and channel fluids through the pliable chip. Fluidigm co-founder and CEO Gajus Worthington says the company's chips, combined with an instrument platform known as the Topaz system, utilize free interface diffusion to produce protein crystallization results "you could never get before." Fluidigm has so far lassoed about 20 customers.

In developing the Topaz system, Worthington says his company relied on the assumption that for a microfluidics platform to be successful, it would need capabilities exponentially greater than what one could achieve with a traditional platform technology for a given application. "It's not enough to come up with something that just runs a little bit faster and saves a little money," he says. As with the integrated circuit, "you've got to make something — not just a price point — that provides information or results that are recalcitrant otherwise," he says. "Not surprisingly, we think we've done that with Topaz."

New Bets in Beta

Other newcomers searching for a microfluidics destiny are taking a "plug and play" approach to designing products. Instead of replacing a well-established platform technology such as robotic liquid handling of 96-well plates, adherents to this strategy are trying to build microfluidics systems that replace individual components, but still integrate with an established platform.

Livermore, Calif.-based Eksigent Technologies is taking this approach with its miniaturized pumping and metering mechanisms, initially developed by scientists at the Livermore campus of Sandia National Laboratories. Jeff Jensen, Eksigent's COO, says the company chose to focus on high-performance liquid chromatography because its technology was ideally suited for the low flow rates and precise flow control required in biological separations, particularly in proteomics. "Initially, we're not changing the workflow; we'll just make dramatic improvements," he says. "We want to avoid re-engineering the entire process, and the benefit is that we'll get to product revenue faster." Eksigent currently has products at several beta-testing sites, including Scripps Research Institute and the Beckman Institute at CalTech.

Other companies are attempting to pull off the same strategy. Nanostream, in Pasadena, Calif., is developing a microfluidics chip for performing multiplexed liquid chromatography that it hopes to release commercially by the end of this year, and BioMicro Systems, in Salt Lake City, has just released a platform for microarray hybridization that relies on microfluidics to perform the procedure using low volumes and conditions optimal for reaction kinetics. Still others, such as Micralyne of Edmonton, Alberta, and Micronit of Enschede, Netherlands, have opted to provide OEM services for instrument companies seeking microfluidics systems.

The trouble for many microfluidics companies releasing their first products, however, is that given the current state of the capital markets there won't be many second chances. If a company's first product is a flop, says Frost & Sullivan's Cosper, it will be hard for that business to survive until it can release a second product that brings in revenue. "Our strategy is to do a very good job with [our first] product," says Fluidigm's Worthington. "The bar is very high, and it's very real."

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