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On Heels of Strong Q3, Nanogen Turns Eyes To FDA Approval, Licensing Deals With Jurilab

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Buoyed by strong third-quarter revenue growth, San Diego-based Nanogen is prepping its newly released NanoChip 400 System for US Food and Drug Administration approval and exploring new ways to license its IP portfolio, according to company officials.

The molecular diagnostics company will also make a follow-up investment in Jurilab, and look to channel its own and Jurilab's IP portfolio into licensing opportunities.

"During the course of 2006 we plan to submit the [NanoChip] 400 with one or more assays to the FDA for clearance," President and CEO David Ludvigson said during a conference call discussing the company's third-quarter earnings last week [see sidebar]. "We are now working to determine the exact timing and tests that will be submitted to the FDA."

Ludvigson said that while the company's first-generation system was marketed for researchers and academics, the NanoChip 400 system is "ideally suited as the molecular testing platform for small and mid-sized clinical labs."

"These customers are being asked to run an increasing volume of molecular tests … as molecular tests move from the periphery of health care into the mainstream," he said. The platform enables users to build their own test panels and uses the company's NanoChip 400-site microarray.


"We have an open and honest dialogue with the FDA and expect to meet with them this quarter to discuss the marketing plans of our microarray products."

Chief financial officer Rob Saltmarsh told BioArray News this week that another selling point for the NanoChip 400 System will be a cheaper price. Since its launch in 2001, the NanoChip Molecular Biology Workstation sold for approximately $150,000. The 400 system sells for approximately $75,000, Saltmarsh said via e-mail.

The FDA

While Nanogen is working towards FDA approval for the system, the company is also attempting to resolve a dispute with the agency stemming from a warning letter it received in August that said Nanogen was improperly marketing its Molecular Biology Workstation and its analyte specific reagents as a closed system for diagnostic use, an indication that would require FDA pre-market approval (see BAN 8/24/2005).

Nanogen denied the allegations and responded to the FDA "in a timely manner," Ludvigson said last week.

"We have an open and honest dialogue with the FDA and expect to meet with them this quarter to discuss the marketing plans of our microarray products," he said. However, Ludvigson reiterated the company's position that it received a less serious, untitled letter from the FDA, rather than a more serious warning letter, during the conference call last week.

"We take all requests and correspondence from the FDA very seriously, but I would like to stress that we received an untitled letter from the FDA, and not a more serious warning letter or a demand to cease in shipments," he said.

Ludvigson's account differs from the FDA's. Steven Gutman, director of the FDA Office of In Vitro Diagnostics, told BioArray News in August that the company indeed was sent a warning letter (see BAN 8/24/2005).

In addition to the NanoChip 400 system, Nanogen is seeking FDA approval for a rapid test for congenitive heart failure, a product the company gained through its acquisition of Toronto-based SynX Pharma in 2004 (see BAN 5/5/2004).

"Our congestive heart failure product continues in development. Our 510(k) submission to the FDA is under review," Ludvigson said during the conference call. "We are still reviewing the exact timing of this product's release but it is unlikely to result in significant â€" if any â€" revenue in this calendar year," he said.


"All contracts between Jurilab and Nanogen are at arms' length and will not block Jurilab from working with other industry players in other programs, including companies that may be considered Nanogen competitors."

Ludvigson also assured investors during the call that the status of the heart failure test is "unrelated to other discussions with the FDA."

IP Opportunities

Though the NanoChip 400 system is clearly the company's flagship product â€" Ludvigson called its launch this month "a milestone for the company" â€" Nanogen is also exploring opportunities to turn its 130-patent-strong IP portfolio, accompanied by the portfolio of biomarkers developed by partner Jurilab, into other sources of what he hopes will become steady revenue.

Citing a license that Applied Biosystems obtained from Nanogen for its MGB Probe technology, Ludvigson said his company has generated a "healthy and stable royalty stream from [its] proprietary technology, approximately $1.7 million per quarter."

"I believe that this could be further expanded as we aggressively seek to earn revenue from our large portfolio," he said. "We have begun efforts to market our IP and you should expect results from this in the coming quarters as we commercialize portions of the intellectual property we control at both Nanogen and Jurilab."

CFO Saltmarsh did not mention any specific Nanogen or Jurilab IP the company could license, but Kari Paukkeri, CEO of Kuopio, Finland-based Jurilab, said this week that his company has racked up a generous IP portfolio that could generate licensing opportunities.

"Jurilab's research and product development efforts focus on the disease risk prediction/predisposition and pharmacogenetics segments in cardiovascular and metabolic diseases," he wrote in an e-mail to BioArray News.

Paukkeri said that Jurilab holds IP related to coronary heart disease, hypertension and adult-onset diabetes. He added that the company has access to a comprehensive DNA database "derived from 20 years of genetic and epidemiological studies on the East Finland founder population."

"Currently Jurilab has in its possession files on over 20,000 individuals from the founder population and more than 10,000 [cardiovascular] and metabolic samples from around the world," he said.

Recognizing Jurilab's potential, Nanogen's Ludvigson said last week that his company plans to make a $1.5 million investment in the company, following up on a $1.5 million investment it made last July (see BAN 8/10/2005).

"We plan to help Jurilab commercialize their intellectual property by helping them develop diagnostic tests and to license their markers and targets to pharmaceutical customers for drug development," Ludvigson said.

Nanogen's Q3 Revenues Increase 191 Percent

Nanogen's total revenues for the period ended Sept. 30 increased 191 percent, climbing to $3.2 million from $1.1 million in the comparable quarter last year, the company said.

According to CFO Rob Saltmarsh, licensing is lifting the firm's bottom line. Around $2.1 million, or around two-thirds, of this quarter's revenues came from licensing and grant money, while $1.1 million, or around one-third, was derived from instrumentation and reagents sales, he said.

Still, Saltmarsh said that balance could change as the NanoChip 400 reaches the market.

"We are expecting additional product revenues beginning in the fourth quarter from the NanoChip 400 that has recently begun to ship," he said. "However, the balance of licensing and product revenues may change [at the end of 2005 and] set the stage for continued revenue growth during 2006."

R&D spending in the period ended Sept. 30 increased 26.7 percent to $5.7 million from $4.5 million year over year.

The company's net loss fell to $8.8 million, or $0.18, from $9.4 million, or $.28 per share year over year.

The company had cash, equivalents, and short-term investments totaling $40.7 million at the end of the recent quarter.

Nanogen will still only have less than a 40-percent investment in Jurilab after the latest transaction closes early next year. Saltmarsh said that Nanogen has "options to purchase the entire company at not-to-exceed prices through 2007," but that it will "come to that decision after [Nanogen] better understands the potential of their marker database."

As for Jurilab, Paukkeri said that "all contracts between Jurilab and Nanogen are at arms' length and will not block Jurilab from working with other industry players in other programs, including companies that may be considered Nanogen competitors."

He said that the need for other partners existed "because the extent of the Jurilab IP and Nanogen, like any other company, has resource limitations."

Currently Jurilab's biggest financers are funds managed by Sentica Partners, which has a 42-percent stake in the company, Paukkeri said.

When Nanogen doubles its investment in Jurilab it will most likely have approximately 35 percent of the company, according to information provided by Paukkeri.

- Justin Petrone ([email protected])

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