This story originally appeared in Biocommerce Week, a newsletter that has been discontinued.
Nanogen plans to sell its microarray business in an effort to focus on building its RT-PCR and point-of-care testing businesses and more rapidly achieve profitability, the firm said this week.
If it sells off the microarray business, Nanogen would follow GE Healthcare as the second notable player in the past year to get out of the market, as sales of microarrays for traditional gene expression applications have slowed considerably. Nanogen also said a primary reason behind its decision is the slow pace at which multiplex molecular diagnostics, such as those being developed on its NanoChip 400 instrument, have been adopted by the healthcare market as a primary reason for its decision.
Nanogen said that it has retained investment bank Credit Suisse to help it evaluate alternatives for the array business, which could include a sale, partnering, or closure. The firm expects to complete the evaluation of the array business, which includes its NanoChip instruments and related reagents and consumables, within 60 to 90 days.
“We continue to believe that the NanoChip technology is the best solution available for clinical laboratories to perform multiplex genetic and infectious disease testing,” Nanogen Chairman and CEO Howard Birndorf said during a conference call this week. However, “multiplex molecular testing in the clinical laboratory remains at an early market stage, with slower growth, slower testing volumes, and adoption of tests at a much slower rate than we had anticipated,” he said.
“Further, the adoption of new molecular tests for genetic-related disease conditions and drug metabolism are widely discussed but narrowly adopted in the healthcare industry,” he added.
Birndorf said “it is clear” that multiplex molecular testing will become a large market, “but the unknown is how long it will take for that to happen.” He said that other than the current molecular tests for HIV, human papillomavirus, and certain other sexually transmitted diseases, market adoption for other tests is likely several years away.
“Given our financial position and other business alternatives, we have concluded that the microarray business requires large investments that Nanogen can no longer afford on its own,” said Birndorf.
For its second quarter ended June 30, Nanogen reported that its revenues rose 63 percent to $10.3 million, while its net loss for the period increased to $14.5 million from $14.1 million. The firm finished the quarter with $7.3 million in cash and cash equivalents.
Birndorf said Credit Suisse would help the firm identify potential buyers with “a similar vision, passion for the molecular market, and offer greater financial resources, broader distribution capabilities, or other internal synergies that can be leveraged in building the NanoChip business.”
Dissing Arrays …
The microarray market for gene expression applications, which was the primary use for the technology for several years, has slowed significantly over the past couple of years. As that has happened, microarray manufacturers have sought ways to diversify their revenue base through other applications such as genotyping and molecular diagnostics — or in the case of GE and perhaps now Nanogen, they have opted out of microarrays altogether.
Last April, GE Healthcare sold its Codelink microarray business to Arizona startup Applied Microarrays for an undisclosed sum.
Codelink was initially developed by Motorola Life Sciences, and over the course of its seven-year existence also belonged to Amersham Biosciences and then GE Healthcare after it acquired Amersham in 2004. Though the platform found a significant user base among researchers, like other microarray platforms from competitors such as Applied Biosystems and Agilent, sales were far behind market leader Affymetrix.
GE’s doubts about using microarray technology for molecular diagnostic applications was a key reason for its decision to sell the Codelink business and added further weight to those who believe RT-PCR will be the technology of choice in the molecular diagnostics field (see BioCommerce Week 12/20/2006).
“The adoption of new molecular tests for genetic-related disease conditions and drug metabolism are widely discussed but narrowly adopted in the healthcare industry.”
Nonetheless, microarray market leader Affymetrix, along with partner Roche Molecular Diagnostics, won US and European approval in 2005 to sell the CYP450 AmpliChip as an in vitro diagnostic. That product is based on Affymetrix’s GeneChip platform.
… But Sticking to Dx
Nanogen said it plans to continue to focus on the clinical diagnostic market, with an emphasis on real-time PCR-based molecular tests for infectious diseases and other rapid point of care products.
In the past year and a half, Nanogen acquired the cardiac care business of Spectral Diagnostics, launched a rapid test for congestive heart failure, and received a contract from the US Centers for Disease Control and Prevention to develop a rapid pandemic influenza test. The firm expects to deliver a prototype test to the CDC later this year and hopes to receive additional funding to complete developing the test.
Nanogen submitted its cystic fibrosis carrier detection assay for 510(k) clearance during the first quarter of this year, but the test has prompted queries from the US Food and Drug Administration. The firm also had begun investigational device exemption discussions with the regulatory body earlier this year regarding assays for warfarin resistance and Factor V and Factor II clotting mutation detection.
But all of these tests run on its NanoChip 400 microarray platform, which was co-developed by Hitachi and launched two years ago.
Nanogen CFO Robert Saltmarsh said during the conference call that the firm will continue to support the NC400 instrument and its customer base, and it will continue to work with the FDA to clear its CF test. However, the firm is suspending development of its Factor V and II clotting tests and the warfarin test.
The company expects that the sale or closure of the microarray business will decrease expenses and improve cash flow by at least $15 million per year. Company officials said the goal of the restructured business would be to achieve profitability faster and with greater predictability. The decision to sell the microarray business is the latest in a series of moves undertaken by Nanogen to achieve that goal.
The firm said during its second-quarter conference call last month that it would combine its two point-of-care diagnostics facilities in Toronto in an effort to reduce expenses. In addition, Nanogen said that it would be able to remove costs from its balance sheet associated with its investment in Finnish genetic marker company Jurilab after its stake decreased due to investments from other firms.
Saltmarsh said this week that specific financial goals for the restructured business in 2008 have not been determined, and the firm expects to discuss such goals after the evaluation is completed.
He noted that the firm has already reduced some staff related to the microarray business, but did not provide further details.