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As Acquisitions Drive Q2 Revenue Growth, Nanogen Preps Nanochip 400 for Q3 Rollout


Following its second consecutive quarter of revenue growth, San Diego-based Nanogen is now preparing to launch what it has hyped as its flagship product, the NanoChip400 System, a company official said last week.

The system "is in several successful betas now and was shown to customers at the [American Association for Clinical Chemistry] meeting last week in Orlando," Robert Saltmarsh, the firm's chief financial officer, wrote in an e-mail to BioArray News this week. "We now expect to ship units late this quarter to both US and European customers," he said.

Saltmarsh confirmed the impending launch of the product the same week Nanogen announced that it had nearly tripled its second-quarter revenues, taking in $3.1 million compared with $1.1 million during the same period last year.

Saltmarsh said that the company expects the NanoChip400, as well as other new products, to result in "substantial revenue growth in 2006."

The NanoChip400 is a 400-site microarray-based molecular diagnostics platform aimed at the research and clinical diagnostic markets. The company had originally promised a release in January or February of this year (see BAN 11/3/2004), but postponed the launch because the system took "longer to complete than originally expected," Saltmarsh said.

"The software, permeation layer on the cartridge, hardware, and finally the [applications] all need to work together, and with so many moving parts it's been a challenge for our development team. But results from the current betas suggest we have made enormous progress," he said.

"The software, permeation layer on the cartridge, hardware, and finally the [applications] all need to work together, and with so many moving parts it's been a challenge for our development team. But results from the current betas suggest we have made enormous progress."

Nanogen recommends the 400-site array for multiplexed mutation detection and the company allows researchers to design their own testing panels for genetic diseases. The company has also said that it will provide customers with analyte-specific reagents for mutations associated with cystic fibrosis, thrombosis, and other diseases of interest.

Saltmarsh said in a March interview that the system will be manufactured by Hitachi, and that his company believes it "will help [Nanogen] broaden [its] impact on the clinical market." (See BAN 3/2/2005)

Indeed, the company hasn't hidden the fact that when it thinks "NanoChip400," it is also thinking "approved by the US Food and Drug Administration." "We have had discussions with the FDA but are unlikely to submit it before next year," Saltmarsh said last week.

In this context, Nanogen has clearly become serious about refashioning itself from a company that has traditionally catered to the academic market, to one that can compete with clinical players like Roche and others.

After staggering through repeated quarters of increased losses and diminishing revenue, the company decided to take a serious stab at the molecular diagnostics market last December when it paid $97 million to acquire Bothell, Wash.-based Epoch Biosciences, and by prepping the NanoChip400.

A Wandering Eye

The NanoChip400 is expected to raise Nanogen's profile in the molecular diagnostics market — CEO Howard Birndorf told BioArray News last autumn that the system would "be perfect for medium- to high-throughput labs that today don't do molecular diagnostics and want to get into it." But the company is already riding a stream of steady revenue from the products it acquired with the purchase of Epoch last year, as well as from Toronto-based SynX Pharma, which it added as a subsidiary in April 2004 (See BAN 8/11/2004).

For example, the company secured a deal with Iceland's DeCode Genetics earlier this year to develop a custom SNP-genotyping assay for SNP discovery, screening, and validation based on one of Epoch's more popular products, the Eclipse Dark Quencher, which suppresses the signal emitted by fluorescent dyes as the samples bind to the DNA probes on the array (See BAN 4/20/2005).

More recently, Nanogen has partnered to sell products developed by Kuopio, Finland-based Jurilab, which develops pharmacogenetic tests, including its DrugMet Test for genotyping Cytochrome P450 and the genes for phase II enzymes involved in drug metabolism. "We intend to integrate their DrugMet product for pharmacogenetic testing shortly into our product offerings," Saltmarsh said last week. Nanogen also made a €1.25 million ($1.5 million) investment in Jurilab and said in a press release late last month that it will add another €1.25 million within six months.

In a statement announcing Nanogen's Q2 results, CEO Birndorf hinted that the company is still hungry for more acquisitions and partnerships.

"We have built a good foundation on which new products and further acquisitions can be added," Birndorf said in the statement.

"We have an ongoing and active corporate development program that continues to evaluate possible acquisitions," Saltmarsh told BioArray News last week about the company's interest in acquiring more products and companies, "but we are not going to announce any at this time."

Making Ends Meet

Despite its recent run of increasing revenues, Nanogen is still losing money. The company reported a net loss of $9.7 million, or $.20 per share in its results for the quarter, down from $12.9 million, or $.39 per share, for the same period in 2004.

Research and development costs increased to $5.2 million from $4 million during last year's second quarter, and as of June 30, Nanogen had $18.8 million in cash and cash equivalents and $13.1 million in short-term investments.

Saltmarsh explained that Nanogen will cut R&D spending as it expands its available product portfolio, and that 2006, not 2005, will be the year Nanogen reports some sizeable product-created revenues.

"We are expecting a modest decline in R&D costs later this year as much of the development costs for new products have occurred," Saltmarsh said.

"We expect to exit 2005 with higher quarterly revenues due to new product introductions that will set the stage for substantial revenue growth in 2006."

— Justin Petrone ([email protected])

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