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After Nearly Doubling Q1 Revenues Nanogen s Birndorf Feels Vindicated

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After nearly doubling total revenues in the first quarter of this year, following a manic year of acquisitions and declining revenues, Nanogen got to tell wary investors, "I told you so."

"I am pleased to report that we are performing as we told you to expect," said Howard Birndorf, the San Diego-based company's CEO, during a conference call with investors last week.

"It was a good quarter for us as we met both our growth and cost-management expectations," he said.

Nanogen reported last week that total revenues for the first quarter increased by 47 percent to $3.2 million from $2.2 million year over year. Driving this growth was a surge in licensing fees, which grew to $1.7 million from $152,000 year over year.

It was the first quarter to include revenues from Epoch Biosciences, which Nanogen acquired in December 2004 (see BAN 12/22/2004).

During the conference call, Birndorf declined to disclose how much revenue growth was attributable to the merger with Epoch, after being asked by an investor.

Receipts from product sales grew to $1.2 million from $1.1 million, while revenue from sponsored research, and contracts and grants declined to $226,000 from $875,000.

The company's net loss for the quarter jumped 54 percent to $8.3 million, or $.17 per basic share, from $5.4 million, or $.20 per share, year over year. The company did not explain the reason for the increase in net loss, but according to the company's earnings report, costs for general and administrative sales climbed to $6 million from $3.6 million in the first quarter of 2004.

Birndorf said that the company would continue to strengthen its sales force throughout the remainder of the year by adding personnel.

R&D spending for the three months ended March 31 increased to $4.9 million from $4.3 million in the year-ago period.

Nanogen said it had around $12.7 million in cash and equivalents and an additional $27.1 million in short-term investments as of March 31.

Birndorf credited the increased Q1 revenues are the result of the merger with Epoch, as well as the acquisition of SynX, which closed last year, with lifting the company out of a financial hole (See BAN 3/9/2005).

The recent acquisitions have "diversified our revenue streams and decreased the risk inherent in operating our companies," Birndorf said.

One of the company's newer sources of revenue is Iceland's DeCode Genetics, which last month announced that it had developed a new SNP-genotyping assay that uses many of Nanogen's newer products, including Dark Quencher, Epoch's flagship product for suppressing experimental noise, as well as DNA-linker technology, modified bases, and fluorescent dyes (see BAN 4/20/2005).

During the conference call, Birndorf predicted that "revenue growth will accelerate during the second half of the year as new products are released."

The company said that revenues for 2005 were likely to be three times the revenues of $5.4 million reported in the twelve months ending Dec. 31, 2004, or approximately $16 million.

The marketplace is still waiting on the NanoChip400, a 400-site microarray-based molecular diagnostics platform aimed at the research and clinical diagnostic markets that is due mid-year. Also in the pipeline are a rapid test for congestive heart failure, which will be launched by SynX, and a tweaked cystic fibrosis analyte-specific reagent, which chief financial officer Robert Saltmarsh confirmed would be released by the end of the year.

The company released the CF assay last year, but sent it back to R&D after it was deemed too complicated (See BAN 11/3/2004).

— JP

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