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Analysts Predict Red Hot Future for Biochips: Sector Poised to Grow to 3.3 Billion by 2004

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Microarrays may be hot now, but in a few years, analysts say the market for these and other biochips will really begin to sizzle.

“The revenue from the microarray market is growing explosively relative to other areas,” said Justin Saeks, an analyst at California-based consultancy Frost & Sullivan and author of a recent report on the biochip market.

The worldwide market for microarrays, microfluidics devices, and other biochips is likely to reach $3.3 billion by 2004 compared to $531 million in 2000, and is likely to grow at a compounded annual growth rate of 65 percent per year between now and 2004, the report estimated.

This growth spurt does not take into account the real firestorm of growth that Saeks believes could occur in 2005 or 2006 as biochips begin to gain widespread use as diagnostic devices.

“Most companies’ short-term revenues are coming from life sciences research, but the market is 10 or even a hundred times greater when you get to diagnostics,” Saeks said. The Frost & Sullivan report predicted that by 2010, the market for diagnostic microarrays, or some combination of arrays and diagnostic microfluidics devices, could reach into the tens of billions of dollars.

Other analysts share Saeks’ optimism about the market, but differ on some of the details.

In a May 2 white paper entitled “Genomics & Proteomics,” Thomas Weisel analyst Scott Greenstone wrote that “microarrays have solidified their place as the preferred method for most applications” in this sector. “We believe it will be difficult for new technologies and products to displace microarrays in applications and studies where scientists have become accustomed to microarrays,” he said.

Another recent biochip market survey, “BioChips: Progress and Prospects,” released by Drug & Market Development Publications in January, predicted the biochip market would grow from an estimated $330 million in 2000 to $2.43 billion in 2006.

This market expansion could lead even more companies to rush into the field than the 100 or so that are already there, said Saeks. “If a company has some expertise in [the microarray] area, they are going to try to shift their focus into this area,” he said.

Along with this inflow into the field will come consolidation as well as an upsurge in alliances and deals between companies, Saeks said: “Alliances and deals are a major theme since you need to forge alliances to get to the widest distribution possible and appeal to the widest number of applications. It’s too hard for these companies to get all of the necessary expertise to go beyond their specialty, such as scanners or labels, or even making chips.”

Partnerships between seemingly unrelated companies, such as chip makers working with diagnostics companies and software companies, and reagent companies partnering with instrument companies, are the kinds of combinations that Saeks said are likely to proliferate in the near future and give those involved a competitive edge.

As companies come together to combine their expertise, it is also likely that they will combine their technologies, Saeks said. While microarrays will continue to dominate the market, companies are likely to integrate microfluidics chips into their devices as they move toward all-in-one sample diagnostic applications.

“The combination of microfluidics, microarrays, and electronics is going to basically all converge,” Saeks said. Motorola is already working on a combined low-density microarray and microfluidics device that uses electronic circuitry to move fluids through the steps of sample preparation and analysis, and other companies may follow suit.

Even Affymetrix, which has thus far focused on increasing the number of data points per chip, is likely to get into the low-density diagnostic end of the chip market, Saeks believes. “It just makes sense that when there are diagnostics on the chips there won’t be thousands of genes, there will be under a hundred, specific to a certain test.”

The company has made low-profile deals with Roche and other diagnostics-related companies already, he pointed out, and could reap the benefits of these partnerships a few years down the road.

With these diagnostic microarrays, a company like Affymetrix could theoretically make a single chip to test thousands of diseases, but given that a number of companies own patents on these genes, the license fees on such a test could prove prohibitive for one company. Instead, Saeks predicted companies would offer low-density diagnostic microarrays that cover a single disease.

In the long run, protein probes could usurp gene probes as the leading form of diagnostic array — given that proteins are more direct markers of a disease than genes expressed in a disease. But analysts say the protein chip still needs to be validated in a laboratory setting before it is widely commercialized. “It’s a matter of scientists who are on the cutting edge printing publications in the journals and letting everyone know how to do it,” Saeks said.

While it may be tempting for companies to stick to their tried-and-true DNA array in the meantime, Saeks said it is key for companies to keep innovating. “To survive in three or four years, you’re going to have to innovate. And you need to start doing that now.”

— MMJ

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