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CombiMatrix s Amit Kumar on Roche Diagnostics and Custom Arrays

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At A Glance

Amit Kumar — President and CEO, CombiMatrix.

Education

  • 1991-1993 — Post doctoral fellowship, Harvard University. Studies focused on designing nanotechnology surfaces and microfabrication.
  • 1991 — PhD, chemistry, focused on material science chemical physics, California Institute of Technology.
  • 1986 — AB, chemistry, Occidental College, Los Angeles.

On Nov. 4, CombiMatrix announced that Roche Diagnostics was delaying indefinitely the launch of the matriXarray, a customizable microarray technology platform developed by CombiMatrix under a non-exclusive agreement announced in July 2001. Within two days, CombiMatrix, a subsidiary of Acacia Research, separately announced that its Custom-Array product line, a customizable DNA microarray platform, will ship in the fourth quarter to beta customers, followed by a full rollout in March 2004.

Burkhard Ziebolz, a Roche spokesman, said the company “is convinced that there is a big interest in the market” for such a product but is “rethinking the issue of customized chips” and taking a deliberate approach to commercializing the product.

BioArray News spoke with Amit Kumar, the chief executive officer of CombiMatrix, to discuss the commercial status of the custom product line, and how the Roche delay will affect the company’s outlook.

How did you react to Roche’s announcement?

The news was disappointing and we had to disclose that. The problem is that there are third-party issues that we have affect over [that influence] when this product is going to be launched. Our job is to make our milestones, do what we need to do to enable them to launch the product, and, ultimately, they [Roche] will make the decision as when to launch. The most important thing is not when the product is launched: The most important thing is that the project is launched, is launched well, and that it’s successful.

What were the issues involved in this decision?

Frankly, I don’t know all the issues. I know that they have been in discussions with other companies that potentially feel that they may need some royalties. Our position is that no one else needs to be paid a royalty. Roche may have a different position from that. That’s all I can comment.

It’s notable that CombiMatrix, instead of Roche, announced the delay in the matriXarray. Why did you feel it necessary to announce the delay?

The [announcement] is not meant for customers, it’s meant for the capital markets. Roche is a $20 billion company — whether they launch it this quarter or next quarter, or 10 years from now, it’s really immaterial to them from a financial standpoint. For us, it is a big program. Despite the fact we have never said it would be launched in the fourth quarter, and we had always said it was under Roche’s control, there was a perception in the marketplace that it was going to be launched in the fourth quarter and people were trading and buying our stock based on that perception. In this era of full disclosure, it was important that we issue that statement when we learned of it.

Where is the matriXarray in development?

Most of the work has been done, more or less. There are some R&D things that we had considered doing as we went forward. The remaining work is related to manufacturing and quality control, things associated with making the product in high enough volume.

Why are you launching CustomArray now?

We always knew that we didn’t want to be completely beholden to Roche, which is a great partner, but it is still a third party over whom we have no control. We always knew we had the ability to launch the product ourselves with another partner because we did a non-exclusive deal with Roche. So, we decided to launch the product ourselves. It’s something we had been working on for months, so it just serendipitously happened that we launched at the same time.

What are the differences between your platform, and the platform you are developing for Roche?

It’s the same chip, the same core technology. The packaging that Roche chose is unique for Roche’s product. We choose to use a more simple, more standard packaging around the chip — a 1x3 slide format that all [scanners] can read, an open system. Customers can buy just one chip, and don’t have to purchase capital equipment and get into a long-term relationship, which is the case for a lot of other companies and, in fact, was going to be the case for Roche. The Roche matriXarray was designed with a piece of capital equipment, the hybridizable reader, to read those chips. So, you can’t use Roche’s matriXarray product unless you buy the capital equipment.

Can you give me some detail on the CustomArray?

We feel that the quality of reactions that we build, because they electrochemical reactions, [are] significantly better than a photochemical reaction. We have gotten data on the quality of our oligos that indicate they are as good quality as you could build on the gold-standard column oligo synthesizers that people have used for a decade or more. Our technology is incredibly flexible, more flexible than anything else you will see out there. A customer can have customization down to the single-base level. They can choose whatever gene from any of the published genomes, and can put whatever sequence they want — such as having sequences from genes from a virus and a human on the same chip. And the customer can ask for oligos of any length. Eventually, we will be providing our desktop synthesizer, and a customer can have everything in his or her own lab.

What do you see as the effects of these two events on your business? Have you taken everything you can off the table with Roche?

There are a couple of research and development payments, but they are insignificant. We have harvested most of what was involved in this agreement; now the goal is to receive royalties from Roche. The best-case scenario is they launch and it’s successful, and we launch, and it’s successful. The worst case is that Roche never launches its product because of third-party issues beyond its control. Let’s take the worst case — that they never launch. We have taken $26 million for development over two years, and you know there aren’t too many companies in our sector who have brought in $26 million in two years. What we have learned there has been applied to our product. Now we are just like another company that has a product that is ready to launch into a billion-dollar business. The success of our company depends how successful the launch is of the product. Obviously, Roche’s royalties will be important, from a financial standpoint, and if we don’t get those, it will have an impact on our revenues. But in [FY] ‘03, there is not a huge and material impact, maybe a million or 2 million dollars. In ‘04, [business] is really going to be determined by our top-line growth, by how many chips we sell. It’s exciting to go out there and do it ourselves. It will require some capital spending on our part and that’s what I didn’t want to do, that’s the only main difference between now and before. I’m hopeful that Roche will resolve its issues and launch the product soon. It’s just not going to happen in the fourth quarter. Our royalty structure has been set: We get double-digit royalties on software, reagents, and arrays as well as on capital equipment. That hasn’t changed: When Roche launches its product, they will pay those royalties.

By going to market with this platform, have you changed your business plan?

We have always wanted to seek partners not only for distribution, but for development and distribution. Ideally, we would love to do this with another partner, but we are not going to wait around. We will start the sales effort. Six months after we have been out there on the market, we can evaluate whether we will continue to invest in the additional sales effort or whether we go out and get another partner. I anticipate that if the product is highly successful, and I hope that it will be, when we launch, partners will be jumping all over themselves to come and continue distribution. We are having discussions with some distributors and we will continue to sign partners to distribute all our products. And we are always going to have an effort on our own to make sure products are out there and we are generating revenues.

The FDA has made some important decisions in this arena. What might that mean for microarrays?

First of all, the decisions don’t surprise me. The FDA has said they are looking forward to understanding how microarrays can be used in the clinic, not only for diagnosing disease, but also for determining what kind of drugs patients will receive. There is precedent for this and we will see more in the future.

The bottom line is that these tests are going to be regulated by the FDA, just like any other test. As such, the decision they made on the AmpliChip, was that if physicians are going to use this, they are going to regulate it. Period. That is to be expected. It does make the hurdle for getting into the market a little bit bigger, because now you have to go through 510(k) approval, but certainly that hurdle is not as big as you have to go through in developing a therapeutic. I’m positively predisposed to it. It provides more credibility to this whole opportunity.

It is hard for me to predict when there will be a big market for microarrays in clinical diagnostics. But, I can tell you for a fact, there will be a market, but I can’t tell you if it is a year from now, or five years from now.

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